The Sports Direct owner, Frasers Group, is attempting to install its founder, the retail tycoon Mike Ashley, as chief executive of Boohoo, as he accused the board of having “lost its ability to manage” the online fashion company.
Frasers, which owns 27% of Boohoo, has written to the board calling for an emergency meeting of shareholders to take a vote on appointing Ashley as chief, less than a week after the company announced that its boss, John Lyttle, would be stepping down.
“There is no stronger candidate for CEO who has the experience and abilities of Mr Ashley and who is in a position to replace Mr Lyttle as soon as possible,” Frasers Group’s letter said.
It is also calling for Boohoo to appoint a restructuring expert, Mike Lennon, as a director.
Frasers said the proposed appointments were “the only way to set a new course for Boohoo’s future” and were “in the best interests of Boohoo, its shareholders and its stakeholders”.
Boohoo said on Thursday it was reviewing the “content and validity” of the request for an extraordinary shareholder meeting with its advisers.
“A further announcement will be made in due course. In the meantime, shareholders are urged to take no action,” Boohoo said.
Shares in Boohoo rose nearly 4% on Thursday morning, valuing it at £359m.
Boohoo, which also owns the Debenhams, Karen Millen and PrettyLittleThing brands, has come under growing pressure in recent months after widening losses and falling sales amid competition from rivals such as the Chinese online fast fashion retailer Shein.
The retailer cut more than 1,000 jobs this year, and has taken on a £222m new debt facility. Despite a sharp rise in its share price during the Covid crisis, as consumers turned to online retail during lockdowns, the stock has lost 90% of its value over the past five years.
The company revealed on Friday that Lyttle was stepping down and it was launching a strategic review of its brands that could result in a breakup of the company. Lyttle, who joined from Primark in 2019, has agreed to remain in post until a successor is found.
PrettyLittleThing’s 36-year-old billionaire founder, Umar Kamani, the son of Boohoo co-founder Mahmud Kamani, had been tipped to take over as chief executive after Lyttle’s departure.
But Ashley’s push could complicate Boohoo’s succession plans.
Frasers’ letter criticised Boohoo’s debt arrangements and the possibility that directors were considering splitting the company. “The board has lost its ability to manage Boohoo’s business and investments,” the letter stated.
after newsletter promotion
It added that Ashley had been pushing for a board seat, prior to Lyttle’s departure, but accused Boohoo of dragging its feet. “We recognise stone-walling when we see it, and these tactics of ‘delay and ignore’ are no longer tolerable in the context of the continued value destruction that the board is overseeing at Boohoo,” it said.
On Wednesday, Frasers Group walked away from a separate attempt to take over the luxury handbag maker Mulberry after a series of rejected offers.
The move to appoint Ashley is the latest controversy to hit Boohoo, which in recent years has grappled with allegations over mistreatment of workers in its supply chain, and subsequent lawsuits from investors.
A group of shareholders is seeking more than £100m in compensation after its shares plummeted in 2020 on allegations its suppliers in Leicester were mistreating workers and paying them as little as £3.50 an hour. While the allegations were initially denied, a damning independent report later found they were “substantially true”.
A trading update released alongside Lyttle’s departure this month showed Boohoo’s adjusted profits plunged by a third to £21m in the six months to the end of August, after a drop in sales caused revenues to tumble by 15%.
Analysts at Shore Capital said the proposal to install Ashley and Lennon “could all be quite explosive … We would suggest shareholders await the outcome of the boardroom tussle, maybe with popcorn to hand.”
Lennon, of Kroll Advisory, has previously worked with Ashley. He was appointed by Frasers this year to handle the administration of Kids Cavern and Base Childrenswear, which were acquired from JD Sports in 2022.