Online fashion retailer, Boohoo, has seen a share increase of over 16% after purchasing a minority stake in its PrettyLittleThing brand.
Costing an initial £269.8m – potentially rising up to £323.8m for the 34% stake, the fashion retailer commented that the purchase would create “significant value for the group’s shareholders” and was an “important further step towards achieving its vision to lead the fashion e-commerce market globally by accelerating full ownership of a brand that is in high growth with enormous growth potential ahead of it”.
The stake Boohoo is buying is held by Umar Kamani, Chief Executive of PrettyLittleThing brand and son of Boohoo co-founder, Mahmud Kamani.
“Three years ago we wanted Umar focused on PLT . . . now is the right time to shift the emphasis,” said the Finance Director, Neil Catto.
The announcement comes shortly after criticism from hedge fund investor ShadowFall. Short sellers at the fund published a 54-page report accusing the fashion giant of misleading its investors in cashflow and profits.
The report saw share prices in Boohoo fall 12% but have since rebounded back in the deal welcomed by analysts.
In a statement issued on Wednesday, Boohoo refuting all the allegations made by Shadowfall. Boohoo said it gave “clear definitions” of how free cashflow was calculated and said its treatment of PrettyLittleThing in accounts was approved by auditors.
Boohoo is one of Britain’s highest-profile online fashion businesses. Founded in 2006, the company has become a stock market darling in recent years thanks to consistent sales growth. The business had sales of £1.2bn last year and is valued at £4 billion by the market.
Boohoo is the latest in a string of British businesses to be targeted by short-sellers, who make money when share prices decline. Other recent targets include Pets At Home (LON:PETS) and NMC Health (LON:NMCN), the former FTSE 100 healthcare business that ultimately collapsed earlier this year.