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Boohoo buys PrettyLittleThing stake for £270m amid short-seller pressure

Oscar Williams-Grut
Senior City Correspondent, Yahoo Finance UK
Zuri Marley attends the boohoo NYFW celebration at the boohoo Mansion on 11 September 2019 in New York City. (Craig Barritt/Getty Images for boohoo)

Online fast fashion retailer Boohoo (BOO.L) is buying the remaining 34% of subsidiary brand PrettyLittleThing it doesn’t already own.

Boohoo said on Thursday it would pay £269.8m ($330.5m) in cash and shares to acquire the remaining stake in PrettyLittleThing. Acquisition costs could potentially rise to £323.8m if Boohoo’s share price continues to climb.

Online youth fashion retailer Boohoo has owned 66% of PrettyLittleThing since 2017. Boohoo said taking full control of the company would be “an important further step towards achieving its vision to lead the fashion e-commerce market globally”.

PrettyLittleThing was founded in 2012 by Umar and Adam Kamani, the sons of Boohoo founder Mahmud Kamani. Manchester-based PrettyLittleThing focuses on fast fashion for young women and has grown rapidly since its launch. It had sales of over £500m last year.

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Boohoo will buy shares from Umar Kumani, who is the chief executive of PrettyLittleThing, and Paul Papworth, PrettyLittleThing’s chief operating officer.

The pair will be paid £108m in new Boohoo shares and £161.9m in cash. Boohoo raised £200m to pursue acquisitions in May but said the PrettyLittleThing deal would be funded through the £240m of cash it had on its balance sheet at the end of February.

Kamani and Papworth will remain in charge of PrettyLittleThing after the Boohoo deal closes.

PrettyLittleThing co-founder Umar Kamani. (Greg Doherty/Getty Images)

The move to take full control of PrettyLittleThing comes amid scrutiny of Boohoo’s relationship with the company. UK short-seller Shadowfall earlier this week released a 54-page report claiming Boohoo gave a “misleading impression” of its free cashflow, partly due to its accounting treatment of PrettyLittleThing. Boohoo said it “strongly refutes” the claim.

Boohoo said an independent board and advisors from KPMG and Zeus Capital were involved in the PrettyLittleThing transaction to ensure it was fair and at arm’s length, given the family ties between Boohoo and PrettyLittleThing’s founders.

Read more: Boohoo 'strongly refutes' cashflow claims of short-seller

Umar Kamani said in a statement: “Since being a disruptive start-up in 2012 to a global fashion brand that generates over half a billion pounds in sales today, I am incredibly proud of what my team and I have achieved in such a short period of time.”

Boohoo chief executive John Lyttle said: “We are delighted to be acquiring the remaining 34% stake in PLT. It has been a brand that has delivered strong growth as part of the boohoo group's platform, and has a great future ahead of it in the UK and overseas.”

Boohoo has owned 66% of PrettyLittleThing since 2017. (Presley Ann/Getty Images)

Shares in Boohoo rose 13% on news of the deal. The stock had dropped over 12% after Shadowfall’s report was published.

Nick Bubb, an independent retail analyst, said the transaction would “clear up the issue” raised by Shadowfall around Boohoo’s accounting treatment of PrettyLittleThing.

Sophie Lund-Yates, an equity analyst at Hargreaves Lansdown, said: “Apart from PrettyLittleThing’s impressive sales performance since boohoo acquired its majority stake back in 2017, there are other reasons for optimism.

“Namely, execution risk is vastly reduced in this deal. PrettyLittleThing has been part of boohoo’s story for a while now, so this won’t come as a shock to the operating system and means the benefits can be reaped quickly.”