Frasers Group buys £75m stake in AO World

Frasers Group has struck a new partnership with AO World following its acquisition of a significant stake in the online electricals seller.

Mike Ashley’s retail empire revealed it had invested £75million buying AO World shares worth 68 pence each last Friday, equivalent to 18.9 per cent of the business.

Michael Murray, Frasers’ chief executive and son-in-law of Ashley, said the deal would enable the firm to boost growth in its bulk equipment and homeware ranges.

Strategic partnership: Frasers Group revealed it had invested £75million buying an 18.9 per cent stake in online electricals seller AO World

Based in Bolton, AO World specialises in selling household products ranging from fridges to washing machines, televisions and thermostats to UK customers.

The investment comes after two years of talks between the companies and is the latest in Frasers’ long history of acquiring stakes in other notable brands.

Ashley’s firm is also known for buying under-the-weather businesses, many of them out of administration, such as House of Fraser, Jack Wills, home shopping firm Studio Retail Group, and tailor Gieves & Hawkes.

John Roberts, founder and chief executive of AO, said: ‘We are delighted to welcome Michael and the wider Frasers team into the AO family and look forward to realising the significant potential that we see for this partnership.

‘As we continue to build on our strategy of pivoting to profitable growth, it will be hugely exciting to have a range of compelling strategic opportunities to explore together, and we’re very much looking forward to working with Michael and his team.’

Just before the AO World deal, the FTSE 100 business upped its stake in Asos to almost 10 per cent, raising speculation that it is planning a full takeover of the struggling retailer.

Buying spree: Frasers Group, founded by Mike Ashley (pictured), has a long history of acquiring stakes in other notable brands

ASOS shares have plummeted by more than 93 per cent in the past two years amid a slowdown in online clothing purchases due to the loosening of Covid-related restrictions and cost-of-living problems.

AO World shares have also slumped heavily since the lockdown era when Britons with extra savings sought to upgrade their domestic appliances but could not obtain them at many bricks-and-mortar outlets.

Trading has been hit by shops opening up again, as well as rising costs, supply chain disruption caused by a shortage of delivery drivers and semiconductors, and customers cancelling repair warranties to save cash.

The business has subsequently exited its underperforming German market and cut many senior and middle management positions to reduce costs.

These measures appear to be paying off, with AO World reporting in April that its full-year profits were expected to be at the high end of forecasts, its fourth earnings outlook hike since last July.

AO World shares were 7.5 per cent up at 74.75p on late Monday afternoon, while Frasers Group shares slid 0.2 per cent to £6.83.

Russ Mould, investment director at AJ Bell, said: ‘Frasers is always one to spot a bargain and the big sell-off in AO’s share price – from above 400p in 2021 to sub-40p last summer – will not have gone unnoticed.

‘It describes the investment as the foundation for forming a strategic partnership – while it is easy to speculate that Frasers will eventually acquire AO outright, it has form for taking equity stakes but not making full takeovers.’