Struggling fashion retailer French Connection (FCCN) says it is reviewing strategic options which could include a sale of the company. The news sends shares in the company surging, up 37% higher to 58.5p.
Press speculation swirled over the weekend regarding the potential sale of the company, with Sky News reporting that French Connection chairman and CEO Stephen Marks had approached bidders to offload his near-42% stake in the North London-headquartered retailer. This would bring down the curtain on Marks’ 50 years in charge of the business he founded.
In a brief response this morning, French Connection says: ‘The board 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. 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.'
French Connection is now deemed to be in an offer period under the City’s takeover code and any deal to buy Marks’ holding would likely trigger an offer for the whole of French Connection.
FIGHTING FOR SURVIVAL
French Connection continues to fight for survival, despite having shuttered stores and drafted in new management and design teams in an attempt to combat competition from rivals ranging from online pure plays ASOS (ASC:AIM) and Boohoo (BOO:AIM) to Ted Baker (TED), Sweden’s H&M and Spanish giant Inditex’s Zara chain.
Mike Ashley’s Sports Direct International (SPD) has a 27% stake in French Connection, whose edgy FCUK-branded clothes and accessories were once must-haves among youthful consumers, although it is unclear if Ashley is one of the interested parties.
Adding to the intrigue is that in 2017, French Connection received an unsolicited bid from an unnamed US group, but the suitor ultimately walked away from a deal.
Back in April, French Connection announced the sale of its 75% stake in women’s clothing-to-homewares brand Toast, a move sharpening its focus on the core brand and raising hopes it would finally reinstate the dividend once it returned to sustainable profitability.
However, last month’s half year results (20 Sep) revealed a sharp 7% decline in like-for-like sales in the UK & Europe arm as testing conditions on the UK high street combined with unseasonal weather.
French Connection remained heavily in loss (and passed the dividend), although Marks insisted his charge remained on target to return to profitability this year, thundering ‘we will be doing everything we can to ensure that happens’.
THE EXPERT'S TAKE
Russ Mould, investment director at AJ Bell, explains: ‘French Connection has long been seen as a value trap - the business contains hidden value but ongoing problems with trading have seen the share price remain weak. A sale of the business could help to lift it out of the 'trap' as long as the suitor is prepared to invest some time and money in sorting out the bad bits and nurturing the good bits.’
Mould adds: ‘It is easy to see why someone might be interested in buying the business, as long as they acknowledge there will be some turnaround work to undertake and that rewards may be further down the line.
‘A potential buyer would have to have to look at the company’s leases and create a plan to streamline the estate of physical stores. It could seek to do more licencing deals as this is proving to be a resilient part of the business, so why not focus more attention here to accelerate growth? And there could be opportunities to make the wholesale business even larger.
‘There could even be an opportunity to capitalise on French Connection’s brand awareness and revitalise the brand strength which it previously enjoyed in the 1990s.'
