ASOS (LSE: ASC) shares moved higher today after it emerged that the online fashion group had received a £1bn takeover bid in December. As I write, the share price is up 8%, though it had been even higher earlier in the day.
Does this mergers and acquisitions news make the stock a buy today?
What we know so far
The first thing to point out is that there doesn’t appear to be any official takeover bid currently on the table. But it emerged over the weekend that ASOS received a £1bn offer from a Turkish online retailer called Trendyol in late December.
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There are a couple of interesting things to note here. First, the fashion company that approached ASOS is backed by Alibaba, the Chinese e-commerce giant. Second, it’s been reported that Trendyol put in an offer valuing the British e-tailor at £10 to £12 a share.
If true, that offer compares very favourably to ASOS’s current valuation. Indeed, it’s around three times higher than today’s share price of 376p, and double what the stock was trading for six months ago.
So I can imagine that many long-suffering shareholders would have been interested to hear the details of a potential takeover bid. Especially considering the stock is down a shocking 93.5% in a little over two years.
When it rains, it pours
The company’s recent woes can be traced back to the pandemic years. The stay-at-home sales boom it enjoyed during lockdowns quickly vanished as high streets reopened and shopping habits normalised.
On top of this, soaring inflation and the cost-of-living crisis has created huge headwinds. For the six months to 28 February, group revenue fell 8% year on year to £1.8bn. And it reported a half-year loss of £291m. Management described trading conditions as “very challenging“.
Then late last month, the company announced a £75m fundraise from investors to repair its balance sheet. Now it’s emerged the firm’s lowly market value of just £448m will see it relegated from the FTSE 250.
So this really has been a period to forget for the company’s shareholders.
Should I buy the shares?
I’m not familiar with the Alibaba-backed Turkish firm mentioned in these reports. But it’s well-known that Alibaba has earmarked global growth as a strategic imperative.
And despite its decline, ASOS still owns brands such as Topshop and remains very well known with consumers in the UK. So acquiring it would give a company an immediate foothold in the UK’s online fashion space.
Personally, I wouldn’t be surprised if a concrete offer for ASOS does actually materialise in the coming months. My guess would be from Frasers Group, the FTSE 100 retail firm that has been building a large stake in the beleaguered company for a while now.
The price-to-sales (P/S) ratio is around 0.2, which shows how distressed the valuation is. So any further rumours of an acquisition could send the shares surging much higher.
However, I suspect this share price rally could quickly peter out without further news. After all, the difficulties the firm has been facing, particularly high inflation and weak consumer confidence, haven’t gone away.
As such, I won’t be investing in the shares today, even though I think the firm remains a prime takeover target.
