The fashion retailer said on Thursday it has acquired full control of PLT for an initial £269.8mln in cash and shares.
Even though the price could possibly rise to £323.8mln, depending on share price performance, it was also a major rebuttal to hedge fund Shadowfall, which on Tuesday predicted the stake could cost £1bn.
Cementing its position as the King of AIM and perhaps jabbing another big finger in the eye of short-seller ShadowFall, Boohoos shares climbed 18% to 394p by Thursday afternoon as investors and the City gave the deal their approval.
“This is a very shrewd and positive move by Boohoos management team that removes one of the major clouds that has hung over the equity story,” said analysts at broker Liberum in a note.
The best performing part of the group in recent years, PLT has grown sales at a 111% compound annual growth rate over the past four years and now makes up 42% of Boohoos revenues and with almost a 12% EBITDA margin compared to the 10.2% group average.
Taking full ownership of PLT is expected to be significantly earnings enhancing for Boohoo, given that the subsidiary made an after-tax profit of £86mln in the past year to February.
At a multiple of around 11-13 times forecast earnings, the deal values PLT well below Boohoos current 27.6x multiple.
Not only that, said the Liberum analysts, the usage of high multiple Boohoo shares to pay for the minority stake means the deal would be 18-20% accretive to the group on a full year basis.
The initial acquisition agreement from 2017 gave Boohoo the right to acquire PLT at the end of the 2022 financial year, “but with early acquisition allows Boohoo to acquire it at a cheaper price than what we estimate could have been between £450-500m based on similar acquisition multiples”.
For the minority shareholders, Liberum said they would get the advantage of gaining a 2.6% immediate stake, potentially rising to 3.9%, in the bigger Boohoo Group, which could be worth a lot more than their minority stake in PLT in the longer-term.
Boohoo was turning the tables on the rest of the retail sector, if not most of the corporate world, by splashing the cash during lockdown, said analyst Sophie Lund-Yates at Hargreaves Lansdown.
She said that as PLT has been part of boohoos story for a while now, integration should be very simple and means the benefits can be reaped quickly.
Lund-Yates was also impressed with Boohoos other news that immediately following completion of the acquisition it will still have more than £350mln of net cash.
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