‘Be Bold, Be Open, Be Responsible, Be Imaginative’ – those are the values that the Mulberry Group (LON:MUL) promotes to its employees.
I would guess that Mike Ashley, who controls 73.3% of Frasers Group (LON:FRAS) and his CEO son-in-law Michael Murray, may well have different views about those corporate edicts.
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The £84m capitalised loss-making handbag maker, whose signature bags sell at around £1,395 each, is in dire trouble and needs a shed load of cash to keep itself as a ‘going concern’ – especially having lost £34.1m last year on sales of £152.1m.
That means it loses £311 for every handbag it sells, that does not sound like good business to me.
However, two billionaires are now locked in a tussle to save the Somerset-based brand.
And who knows, others may well be interested too.
The Business
I remember meeting Mulberry founder Roger Saul and his wife, former Dior model, Monty, years ago when I went down to Chilcompton, near Bath to look around the group’s leatherworks and factory.
Founded in 1971 in Somerset, Mulberry, which listed on AIM in 1996, is known for classic leather bags such as the iconic Bayswater and Alexa, as well as accessories and womenswear.
It is the largest manufacturer of luxury leather goods in UK, its two Somerset factories produce 50% of bags, boasting class-leading quality representing best value for price in the sector.
However, in recent years the group has hit a number of hurdles, including the removal of tax-free shopping for tourists in the UK, forcing it to close its Bond Street store in February 2023.
It claims to have 1,400 employees globally, with its head office in London, two factories in Somerset, and five international offices (Paris, New York, Hong Kong, Tokyo, Seoul).
Ong Beng Seng
The 80-year-old Singaporean property billionaire Ong Beng Seng, and his 77-year-old wife Christina, control Challice Limited, which owns 56% of the Mulberry equity, has within his empire investments in the Singapore Grand Prix, Hard Rock Resorts, and Four Seasons hotels, and he is said to be worth $1.5bn.
He was charged in Singapore last Friday with abetting a public servant in obtaining gifts and with abetting the obstruction of justice.
The two charges are linked to the Corrupt Practices Investigation Bureau’s investigations into former transport minister S. Iswaran, who the day before was charged among other things, with accepting a number of valuable items like hotel stays and Formula 1 tickets from Ong.
Mike Ashley
Said to be worth some $5bn 60-year-old Ashley, through his 77.3% stake in the Frasers Group, has interests in Currys, AO World, ASOS, boohoo Group, Hugo Boss and a myriad of other investments.
It is believed that Frasers first invested in Mulberry way back in February 2020, buying a 12.5% stake for some £19m.
At that time, it said its focus was building stronger relationships with premium third-party brands as a key strategic priority for the group was the elevation of its retail proposition.
In late 2020 Frasers Group ruled out making a bid for the luxury brand.
Mulberry has long been available to shop via Fraser’s Flannels brand and its House of Fraser department store chain.
Late last week Frasers purchased another 3.96m shares in Mulberry, taking its holding up to 37.26% of the equity.
The Refunding
After announcing a poor set of Trading results on Friday 27th September, Mulberry announced that Challice was subscribing £10m for 10m new shares in the company at 100p a share, alongside offering Retail Investors the ability to subscribe for 750,000 new shares at the same price.
It has been announced this morning that Retail Investors only took up 392,013 of the 100p shares on offer, but then it is a strong pointer that the two billionaires control 93% of the equity between them, leaving not many shares held by private punters.
Former MD and Life President Godfrey Davis holds some 1.5%
The group stated that the net proceeds of the Capital Raising will be used to strengthen its balance sheet and provide financial flexibility to support plans being developed by Andrea Baldo, the new CEO and the management team to return the business to profitability and drive future growth.
Frasers Group was not made aware of the cash call until immediately prior to its announcement, so it obviously did not appreciate being left in the dark and accused the luxury brand of a total lack of engagement.
“As a committed long-term investor in Mulberry, Frasers would have been willing to underwrite the subscription in its entirety, potentially on better terms for the company.
Given this total lack of engagement, we believe the status quo to be an untenable position for Frasers and the other minority holders of Mulberry shares.”
Mulberry posted a pre-tax loss of £34.1m in the year to March 30, down from £13.2m profit previously and said that sales had fallen 18% in the first 25 weeks of its current financial year.
Frasers Offer
Last Monday, 30th September, Frasers stated that it was considering making an £83m Offer of 130p for every Mulberry share, which was at a 30% premium to the Challice price.
The two sides are said to have ‘talked’ but the result was a firm rejection of Frasers possible bid.
It has until Monday 28th October to firm up on its proposal.
Mulberry – another potential partner lined up?
Sector professionals take the view that Ong will not sell up his stake to Frasers – so what now?
Founder Roger Saul thinks that LVMH could be just the right owner for Mulberry, which he suggests could fit in very well into its luxury fashion goods portfolio.
In July this year the 52-year-old Andrea Baldo was appointed CEO of Mulberry.
At that time Chairman Chris Roberts stated that:
“Andrea’s international fashion brand expertise, creativity and strategic thinking meant he was absolutely the right person for this role,”
He was previously CEO of GANNI, which is one of the fastest growing advanced contemporary fashion brands in the dynamic global affordable luxury womenswear market.
Founded in Copenhagen, Denmark in 2000, GANNI is a leading advanced contemporary fashion brand offering differentiated women’s ready-to-wear clothing, it has established an international presence through its owned stores and more than 400 premium retailers in 20 countries including Denmark, Norway, Sweden, the UK, Germany and the U.S.
GANNI is owned by L Catterton, the $34bn AUM investment empire which invested in the business in 2017.
L Catterton, which claims to be the largest and most experienced consumer-focused private equity group in the world, has made more than 250 investments in leading consumer brands across all segments of the consumer industry.
The question is whether Andrea has the guts for this billionaire turmoil?
Or could L Catterton, LVMH or A N Other be interested in taking both Ashley and Ong Beng Seng out of their holdings and then fund Baldo’s attempts at refocusing Mulberry and take it downmarket?
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