French Connection for sale, will Ashley step in?

By

Sandra Halliday

Published
Oct 8, 2018

In a short statement on Monday, French Connection confirmed what had been rumoured for some time with the company saying that it’s looking at its strategy options and one of those could include a sale.

“The Board of French Connection Group plc notes the press speculation over the weekend regarding the potential sale of the company [and] confirms it is currently reviewing all strategic options in order to deliver maximum value for its shareholders, which includes the potential sale of the company,” it said. “There can be no certainty that an offer will be made for the company, nor as to the terms on which any offer will be made.”

The big question next is who would buy it? Mike Ashley (whose Sports Direct owns 27%), or does he have too much on his hands with House of Fraser at the moment? A major US or European group? A Chinese conglomerate? Private equity? Or perhaps a UK-based peer? Could French Connection boss Stephen Marks even try to take it private himself?

Plenty of potential owners must be running the numbers as we speak, but for now, nobody has publicly expressed an interest.

Any sale would involve founder and long-time CEO Marks selling his majority stake and under UK listed company rules, that would mean a mandatory offer for the rest of the firm’s shares.

So what has prompted 72-year-old Marks to exit the firm (assuming he’s not planning to buy it)? Years of poor results and intense investor pressure while it has targeted a turnaround could have finally become too much. 

The board has named Numis Securities as financial adviser in the sale process and Mike Ashley’s 27% stake means he has a loud voice in whatever happens to the company, but Marks’ voice is louder due to his 42% holding.

French Connection’s troubled last few years conceal a much brighter time in earlier decades with the company having been founded in 1969 and seeing huge success as it expanded its store numbers and introduced the FCUK label. That label, a play on its initials, but also interpreted as a tongue-in-cheek re-appropriation of the well-known swearword, grabbed attention in the 1990s but was also seen by some as outdated more recently.

A world in which on-trend fashion could be bought much more cheaply than the company’s products had also had a negative effect on French Connection’s bottom line and in its most recent six months to July 31, group revenues continued to fall (by 2.4% to £58.1 million). However, the decline has slowed and its pre-tax operating loss of £5.5 million was also an improvement on the prior year, suggesting that store closures and a close look at the firm’s product output are starting to yield results.

That fact could boost any eventual sale price. If the stronger performance has continued in the last few months (and we don’t know whether it has or whether FC has been hit by the headwinds hitting other UK firms), then any buyer would be taking on a recovery story rather than a firm in dire need of a turnaround.