The elevation last summer of Michael Murray to be chief executive of Frasers Group – Sports Direct, as was – was supposed to signal a less freewheeling approach to buying other companies (and stakes in other companies), or so we thought.
Whereas his father-in-law, Mike Ashley, seemed simply to like a punt on companies he judged to be undervalued, Murray spoke the language of investment discipline. “If it doesn’t fit into sport, premium or luxury or add value to our ecosystem or platform, then we won’t be buying it,” Murray told the FT last year when aspiring to smoother relations with the City.
The flexible word in that vision, it’s now clear, was “ecosystem”. If the edges of the landscape are sufficiently blurry, almost anything can be ruled in. Thus a week ago, the group increased its stake in struggling online fashion retailer Asos to nearly 9% for reasons that were not explained. From outside, it looked like a re-run of the old days when Sports Direct/Frasers was virtually guaranteed to turn up at the scene of any developing or unstable situation in retail-land.
Now comes something odder – an entry into the world of fridges and freezers. Frasers has bagged a 18.9% stake in AO World, the online electrical appliances retailer, that has been shaken loose by the crisis at Odey Asset Management. It paid £75m at a price of 68p a share.
There is a school of thought that says AO, now that it has stopped throwing money away in the Netherlands and Germany and is focused on making profits in the UK, is an interesting stock. Yet it’s hard to see, strategy-wise, how fridges fit into Frasers’ clothing-dominated world.
At least Murray attempted an explanation on this occasion. “Frasers will benefit from AO’s valuable know-how in electricals and two-man delivery, helping us to drive growth in our bulk equipment and homeware ranges,” he said. Okay, Sports Direct sells gym equipment and sofa.com (a past Fraser acquisition) delivers sofas, but buying a one-fifth stake in AO is a roundabout way to request a lesson in the art of van logistics. You are allowed to just negotiate a deal with AO’s established operation that services third parties.
John Roberts, AO founder and chief executive, sounded enthusiastic about his new shareholder, it should be said, claiming a “fantastic endorsement” and talking up the “compelling strategic opportunities to explore”. Well, maybe. It seems equally possible that this alliance becomes a time-consuming distraction for AO. It would surely be more logical for a public company to agree on the commercial opportunities before – not after – the stake-building happens.
From the Frasers’ end of things, outside shareholders in the 71%-owned Ashley firm have just had a reminder that the corporate instinct for opportunism is alive and well. Sometimes, the stake-building adventures pay off, as with Hugo Boss (where Frasers still has a 2.2% holding), and sometimes they go expensively wrong, as at doomed Debenhams. But Murray’s promotion to public face of the company hasn’t noticeably altered the scattergun approach to stake-building. Behind the bluster, one suspects Ashley simply thinks AO’s shares are cheap and fancies a plunge.
