The gloves are off at Boohoo and Revolution Beauty, where the first punches have been exchanged in a fight for control of the embattled makeup specialist.
After originally taking a stake in Revolution Beauty just under a year ago, when Boohoo maintained it intended “to be a supportive stakeholder and long-term partner”, the online fashion powerhouse this week launched a coup attempt as it unveiled a plan to oust Revolution’s management and install its own representatives, non-exec Alistair McGeorge and former chief financial officer Neil Catto.
What has changed? Boohoo, which further increased its investment in Revolution last year and is the majority shareholder with a 26.6% stake, made its move just as Revolution looks as if it might just be leaving some of its problems behind.
After an accounting scandal, and amid the ongoing possibility of legal action against its founder and former chief executive Adam Minto – who holds a 15.8% stake and whose thinking on Boohoo’s initiative is unknown – and suspension of share trading, Revolution asserted that “the current directors and management team have navigated Revolution Beauty out of the chaos arising from the extensive historical management and governance issues within the business”.
“Does Boohoo no longer believe in Revolution’s growth potential unless there is leadership change? Or is it precisely because it believes in it and wants control?”
Boohoo’s pounce now looks, as Revolution has claimed, like “a cynical attempt to seize control of the company without financial outlay nor any compensation to Revolution Beauty shareholders”.
Absent from Boohoo’s statements so far is any sense of what its plan would be for Revolution. Would it remain a public company but effectively a Boohoo subsidiary? It’s hard to see how that would make sense. Would a full acquisition follow? Or some as yet unknown corporate manoeuvring? The latter wouldn’t be a bad bet.
The original rationale for Boohoo buying in was to build “upon the existing relationship… under which Revolution Beauty products are sold through several of the group’s direct-to-consumer brand websites and its online digital department store, Debenhams. The investment reflects Boohoo’s belief in the growth potential of Revolution Beauty.”
Does Boohoo no longer believe in that growth potential unless there is leadership change? Or is it precisely because it believes in it and therefore wants control at a bargain-basement price?
When it floated in 2021, Revolution had a valuation of £500m. Its shareholders might decide that having been through the mill, why not let established, successful retailers have free rein over the business in the hope that – assuming it remained public – they will reap the rewards of improved performance. That would be a gamble.
While Boohoo’s interest begs many questions, not all of Revolution’s arguments against the installation of Boohoo managers hold water.
Revolution has claimed Boohoo’s candidates have little experience in beauty or supplying stores.
“From the point of view of Revolution investors, it would make sense to resist Boohoo’s advances until the resumption of share trading”
But McGeorge has wide-ranging retail experience and knowledge of the industry’s supply chains from companies including Matalan and New Look. Boohoo also bolstered its credentials in beauty specifically by bringing on board Rachel Horsefield for the Revolution gig. She has extensive experience from THG Beauty and Boots.
But Boohoo investors may have some doubts about whether this game is worth the candle.
Revolution is small – revenue was £75.3m in the most recently reported first half. Might it become a distraction? McGeorge, who is deputy chair of Boohoo, only joined the online retailer’s board in March.
Is it right that he should shift his attention while, in its own words from the most recent prelims, Boohoo’s “priority and focus is to get back to growth” after the volatility of the pandemic and its aftermath?
Revolution’s board has, crucially, left the door open by saying it was willing to still “engage with Boohoo in good faith and in a constructive manner”.
From the point of view of Revolution investors, it would make sense to resist Boohoo’s advances until the resumption of share trading.
Revolution’s share price should give an indication of present value and the level of confidence in future prospects, and inform a response to Boohoo.
That would enable investors to decide which side to back in this particular management beauty pageant – which has got ugly early.
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