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ASOS (LSE:ASC) has entered into a binding agreement with HEARTLAND A/S, a subsidiary of the Holch Povlsen family business, to form a new joint venture (JV) for the purchase of the Topshop and Topman (TSTM) brands. Following an initial unsolicited offer and a competitive sale process, HEARTLAND, through its subsidiary AKTIESELSKABET AF 24.8.2024, will hold a 75% stake in the JV. This represents an investment of £135 million, valuing the TSTM brands at £180 million. ASOS Holdings Limited (AHL) will retain a 25% share, with the option to sell a further 5% stake to the HEARTLAND subsidiary for £9 million.
After transaction fees and a pro-rata payment to Nordstrom International Limited, ASOS will receive approximately £118 million in net cash, which will be used to strengthen its balance sheet.
HEARTLAND, representing the Holch Povlsen family’s interests, is also involved with BESTSELLER, a global wholesale and retail company with sales exceeding £4 billion and a network of over 2,800 retail stores in more than 30 countries.
Impact and Future Strategy
As part of the JV, ASOS will retain certain design and distribution rights for the TSTM brands, enabling it to continue marketing and selling the brands online in exchange for a royalty fee. While the deal is expected to have a negative EBITDA impact of £10-20 million in FY25, it is anticipated to become EBITDA accretive over time as the JV matures.
FY24 Trading Update
ASOS has made progress with its “Back to Fashion” strategy, which aims to bring the latest fashion to young, trend-conscious customers while driving sustainable growth. For FY24, ASOS expects adjusted EBITDA to reach the upper end of consensus estimates, although sales are expected to be slightly below guidance. All other financial guidance remains consistent with forecasts made at the FY23 year-end, subject to any impacts from the JV deal.
Key achievements in the second half of FY24 include:
- Speed to Market: ASOS’s “Test & React” model, which fast-tracks products from design to sale within three weeks, has met its target, representing 10% of own-brand sales by the end of FY24.
- Expansion of Flexible Models: The “Partner Fulfils” initiative now accounts for over 4% of gross merchandise value (GMV), with more than 100 brands, providing customers with a wider range of products.
- Cost Reductions and AI Integration: ASOS has successfully reduced its cost to serve by improving customer experience through AI-driven personalization and enhanced product imagery, resulting in lower returns rates year-on-year.
Refinancing and Financial Stability
In conjunction with the JV, ASOS has announced a refinancing plan, including the launch of approximately £250 million in Convertible Bonds due 2028. The company also intends to partially repurchase its existing £500 million 0.75% Convertible Bonds due 2026.
Additionally, ASOS has amended and extended its existing facilities agreement with Bantry Bay Capital, pushing the maturity date to May 2027, with an option for a 12-month extension.
