Shares in Accent Group (ASX: AX1) were up around 4% at the open today following revelations that the ASX-listed foot retailer had finally sealed a long-awaited deal with UK retail company Frasers Group.
The strategic transaction between Frasers and Accents Group - which owns Hype DC and Platypus stores - came in two equally meaningful parts today.
Firstly, the London-listed retailer, which owns brands such as Slazenger and Everlast is taking its shareholding in Accent to 19.57%, up from its original 14.65% stake.
Secondly, Fraser's updated stake - valued at around $60.4 million – will be used to fund the first roll-out of the UK retailers' Sports Direct business across Australia and NZ.
Accent, which has been granted the right to manage Sports Direct locations for an initial 25-year term, plans to open 50 stores over the next six years.
Accent will have access to Frasers’ brands such as Lonsdale, USA Pro and Hot Tuna to sell in Sports Direct and other Accent shops.
Part of the deal will see Accent pay royalties to Frasers based on sales.
Online fashion marketplace
The deal will also see Accent acquire Frasers’ discount online fashion marketplace, MySale. This will consolidate Frasers’ local operations into Accent and extending Accent’s online presence.
Accent’s CEO Daniel Agostinelli told the market there was an opportunity to open up to 100 or more Sports Direct stores over time.
“Sports Direct is one of the leading sporting goods retailing businesses globally,” said Agostinelli who has locked in a new employment deal, with a base salary of $1.7 million.
“Frasers and Accent see a significant opportunity to bring a new and exciting global sports business to the Australian and New Zealand markets.”
Frasers' increased stake in Accent and the upcoming store rollout are seen as a strong sign of growing offshore interest in the recent growth of Australia’s fitness and athletic retail market – with estimated retail sales of $5 billion.
Hands off for three years
As one of the world’s largest owners and retailers of sports, premium and luxury brands, Frasers last year reported revenue of £5.5 billion.
With over 1500 stores in more than 30 countries, recent developments raise questions about whether the UK retailer could be eyeballing a future takeover.
However, under the deal announced today, Frasers won’t be able to buy more than 26% of Accent for the next three years.
Overall, Accent operates more than 900 stores including Stylerunner, Nude Lucy and The Athlete’s Foot, plus 12 distributed brands.
Compelling synergies
At face value, the synergies between Accent and Sports Direct look compelling.
For example, in Australia, Accent has distribution agreements with Skechers, Hoka, Saucony, Merrell, Vans, Timberland and Lacoste, all of which play an important role in the Sports Direct business in the UK and South-East Asia.
With a market cap of around $1.1 billion Accent sits just outside the ASX300. The share price has been flat over one year, down 19% year to date and up 7% in one month.
A number of indicators show the stock is in a long-term bearish trend.
Consensus is Moderate Buy.
This article does not constitute financial or product advice. You should consider independent advice before making any financial decisions.
