Word on the street, and from retailers, is that Sports Direct parent Frasers Group Plc is making a buy-out offer for all shares of the struggling Norwegian sporting goods retailer XXL ASA. The move comes after a reported shareholder revolt over management’s plans to fund a turnaround.
XXL ASA (XXL) reportedly focuses on strict liquidity control, inventory reduction and a financial solution involving rights issues and loans to support working capital investments. XXL has reported that it “aims to reverse sales trends and strengthen its position as a leading sports retailer in the Nordics, with expectations for market recovery pushed to 2025.”
XXL said in an “extraordinary general meeting” XXL ASA held on November 28 electronically through Lumi AGM that, in accordance with the Board of Directors’ proposals, the agenda items related to the fully underwritten rights issue of NOK 600 million in the company were not resolved, and, therefore, the company would proceed with the alternative transaction structure as described in the stock exchange announcement XXL made on November 19.
The XXL Alternative Transaction Structure
In the Alternative Rights Issue, a newly established and wholly-owned subsidiary of XXL, XXL Holding ASA (XXL Holding), that will have acquired materially all assets, rights and liabilities of the company as contribution in kind, will raise new equity. The shareholders of XXL will receive subscription rights for the Alternative Rights Issue as dividend in-kind in proportion to the number of shares held in XXL at a date to be determined by the Board of Directors of XXL (the Subscription Rights). The shares in XXL will trade inclusive of the right to receive Subscription Rights until such date.
The Subscription Rights, when issued, can be used to subscribe for new shares in XXL Holding in a subscription period that is expected to commence in January 2025 and which is expected to run for a period of 14 days from the date of commencement (Subscription Period). The commencement of the Subscription Period is inter alia subject to the publication by XXL Holding of a prospectus for the new shares Offered in the Alternative Rights Issue.
XXL Holding will apply to list the Subscription Rights on Euronext Growth Oslo during the first part of the Subscription Period and for the listing of the shares in XXL Holding (including the new shares) on Euronext Growth Oslo following the completion of the Alternative Rights Issue.
The Frasers Group Move
Frasers Group has not kept quiet about the move to acquire the business or support XXL, releasing a statement Friday morning, December 6, that announced to the Oslo Stock Exchange that, having carefully considered the options available to it as the second largest shareholder in XXL, it intends to launch a voluntary offer for all of the shares in XXL, which Frasers does not own, at NOK 10 per share in cash.
Frasers reported that it had ~32.5 percent of XXL voting rights and ~25.8 percent of the issued share capital at press time. Frasers said the offer values XXL’s fully diluted share capital at NOK 246,357,450.
XXL, which claims on its website to be the fastest-growing sports retailer in the Nordic region, said in a separate statement that the XXL Board will consider the announcement’s content and potential implications for the ongoing equity financing process.
Michael Murray, CEO of Frasers Group, said, “Our strategic vision and industry experience position us uniquely to help XXL navigate its current challenges. We are committed to ensuring that XXL reaches its full potential.”
Frasers said in its full announcement filed with the Oslo Stock Exchange that further to the announcement made by XXL on November 28 in relation to, among other things, the shareholder vote against XXL’s proposed rights issue of NOK 600 million, as announced on November 6, and XXL’s plan to proceed with the alternative transaction structure, as described in XXL’s announcement on November 19, 2024 (and summarized above), “the Group has taken quick action to consider and assess the possible options available to it.”
“We believe that the proposed Alternative Rights Issue is wrong, its legality is questionable and its implementation will be extremely detrimental to both Frasers and the other minority holders of XXL shares, who will be unfairly and significantly diluted by the commission shares to be issued under the terms of the Alternative Rights Issue,” Frasers wrote in its announcement. “In addition, we do not believe that shareholders, especially minority shareholders, should be asked to provide further funding to XXL when it has not articulated any clear plan to address and resolve the root causes of its persistent problems.”
Frasers reported that it believes it has the relevant experience to save XXL and is ready to support it.
About the XXL Offer
The Offer includes a total consideration for all of the shares in XXL of approximately NOK 246,357,450. This price represents a 25 percent premium over the closing price of NOK 8.00 on December 5, 2024.
In comparison to the Rights Issue and Alternative Rights Issue, the Offer represents an opportunity for shareholders in XXL to monetize their shareholding rather than providing additional funding to XXL on a diluted basis, as follows:
- Under the Rights Issue, non-participating shareholders would have faced a dilution of approximately 99 percent based on a subscription price of NOK 0.1 per new share.
- Similarly, under the Alternative Rights Issue, non-participating shareholders will face a potential dilution of approximately 99 percent based on a capital raise of NOK 375 million, assuming a subscription price of NOK 0.1 per new share. Furthermore, shareholders who participate on a pro-rata basis, excluding those in the underwriting consortium, will be diluted by approximately 15 percent due to the proposed underwriting fee of 18 percent payable in shares at the assumed subscription price of NOK 0.1 per new share.
Frasers confirmed that the company has the funds to cover the consideration payable under the Offer in full without requiring additional financing.
Interim Financing Solution
Frasers said it is “well reported” that XXL is unable to access adequate levels of appropriate stock (inventory), which is damaging sales volumes and, therefore, its business.
The company said it is willing to support XXL if the Offer is successfully completed to
- address XXL’s stock shortage,
- provide XXL with products and brands that will make XXL’s retail offering more attractive and
- ease XXL’s cash requirements.
“As we understand, XXL is short of sufficient funds to pay its suppliers. Frasers has a solution for this cash shortage, which also helps with the stock shortage,” Frasers wrote.
Subject to satisfactory due diligence and completion of the Offer, Frasers said it is willing to consign up to NOK 500 million of inventory on a delayed payment basis, under which XXL will not be required to repay Frasers until the inventory is sold.
Frasers is open to discussing with XXL alternative means of providing liquidity, such as purchasing and consigning XXL’s existing inventory orders from suppliers.
The Offer will not be subject to any other financing or due diligence conditions. The Offer is expected to be completed in the first quarter of 2025, following receipt of regulatory approvals and satisfaction of all other Offer conditions. The Offer may only be accepted based on the Offer Document.
Conditions to the Offer
If the Offer is launched, full details, including all conditions, will be described in an Offer document will be sent to all eligible XXL shareholders, subject to review and approval by the Oslo Stock Exchange.
XXL ASA reported a challenging third quarter of 2024 with a 7 percent decline in year-over-year growth, despite quarterly sales recovery and a slight improvement in Sweden due to interest rate cuts.
Image courtesy XXL ASA
