The war of words between Boohoo Group and Revolution Beauty has heated up with the latter on Friday answering Boohoo’s criticism over its actions in recent days.
It said the its ousted-then-reinstated trio of directors weren’t actually voted out by 74% of shareholders as claimed, and that the actions it took were important steps in getting the firm’s shares readmitted to stock exchange trading.
But before we get into the detail of that, it would be useful to recap just what’s been happening to create the open warfare between the company’s leadership team and its biggest single shareholder.
THE 2010s: COMPANY FOUNDED, SEES EXPLOSIVE GROWTH
Revolution was founded by Adam Minto and Tom Ellsworth in 2014. Making heavy use of social media for marketing, it was named the UK’s fastest-growing beauty brand by The Sunday Times in 2019.
JULY 2021: STOCK EXCHANGE LISTING
Revolution listed its shares on London’s Alternative Investment Market (AIM) two years ago and was valued at almost £500 million based on the share price. Subsequently it reported soaring sales and fast growth in the US and acquired US operation BH Cosmetics out of Chapter 11 bankruptcy in early 2022.
AUGUST 2022: BOOHOO BUYS IN, SHARE TRADING HALTS
The success story continued and in August 2022, Boohoo Group acquired around a 13% stake in Revolution. The investment built on “the existing relationship” between the two with Revolution’s products sold through several of Boohoo’s DTC brand websites and its Debenhams e-store.
Within a few days, however, Revolution’s shares were suspend from trading on the stock exchange due to it being late with its audited final results and annual report for FY22. The share price plunged over 40%.
AUTUMN 2022: SCANDAL BUT BOOHOO STAKE INCREASES
Revolution called in investigators in September after auditors flagged “serious concerns”. In October, Executive Chairman Tom and CEO Minto “voluntarily” agreed to step away from day-to-day management. Interim COO Bob Holt became CEO in November and it emerged that Boohoo’s stake was now over 26%. Boohoo believed in Revolution’s growth potential and aimed to be a “supportive stakeholder and long-term partner”.
EARLY 2023: MORE GROWTH BUT UNACCEPTABLE PRACTICES
Despite being loss-making at an operating level, Revolution continued to expand. In January it announced a major Superdrug deal and in February a big US deal with Walmart.
Also in January, Revolution’s probe into previous management’s actions reported “unacceptable” practices that inflated revenue and made undisclosed loans to distributors.
In March, it said its delayed results would be published by the end of April.
MAY/JUNE 2023: RESULTS AT LAST, PERFORMANCE IMPROVES
Results for the year to February 2022 appeared in late May, with operating losses surging to £38.8 million, although revenue jumped 35% £184.6 million. They were quickly followed by H1 FY23 results (the six months to August 2022) results, with narrower losses and a “solid” performance in the UK and abroad.
It said it saw an “improving trend of performance through the second half of FY23”. Revenue for that year should be up in low single-digits with a “small loss” on an adjusted EBITDA basis. And for the current FY24, it has seen “encouraging trading”.
19 JUNE: BOOHOO MAKES DEMANDS
Boohoo, the beneficial owner of 26.6% of the shares, appeared to lose patience. It requested a general meeting and said it wanted to replace the leadership team. It “notified the board… of its intention to vote against the reappointment of” CEO Bob Holt, Chairman Derek Zissman, and Finance Director Elizabeth Lake at the upcoming AGM on 27 June.
It said it was “grateful” to them “for stabilising the business. However, as [it] transitions to its next phase, where the focus must switch to growth, Boohoo believes a senior leadership team with the right retail, e-commerce and consumer brands experience is required to deliver shareholder value”.
It wanted to appoint ex-New Look Chairman and Boohoo non-exec director Alistair McGeorge and ex-Boohoo CFO Neil Catto as directors. Later in June, it also added Rachel Horsefield to its list of proposed new directors. She was formerly beauty CEO at THG.
20 JUNE: LEGAL ACTION AGAINST FOUNDER
Revolution said it was taking legal action against founder Adam Minto, alleging he “breached his fiduciary, statutory, contractual and/or tortious duties to the company”. It’s looking to recover “material sums relating to the exceptional costs the company incurred as a result of the matters alleged”.
21 JUNE: REVOLUTION RESPONDS TO BOOHOO
The next day, Revolution called Boohoo’s actions “hostile… value-destructive, opportunistic and self-serving”, and not being in the interests of the shareholders “as a whole”. It said it was trading well and said the “cynical” Boohoo actions “create considerable risk to the prompt restoration of trading in the company’s shares and its stakeholder relationships”. It also sought — unsuccessfully — to delay the AGM.
28 JUNE: DIRECTORS OUT THEN IN, SHARE TRADING RESUMES
At the AGM, Revolution’s leadership trio was voted out by a 74% margin. But the remaining director chose to reinstate them and two new non-executive directors were appointed, despite Boohoo opposition. Boohoo objected vociferously.
Importantly, shares in the retailer began trading again and rose more than 50% against their final trading day last year, but were still down over 99% in the past 12 months.
29 JUNE: BOOHOO QUESTIONS SHARE AWARDS
Boohoo said it wanted answers about nil-cost share options awarded to the reinstated directors and other members of the management team. The share awards had a dilutive impact of 3.4% on existing Revolution Beauty shareholders, and Boohoo complained “it was not consulted on the [awards], did not approve its terms, nor approve the appointment of its two main beneficiaries as directors”. It complained of the generosity of the awards, given short terms the directors have served.
30 JUNE: REVOLUTION ISSUES ROBUST DEFENCE
As mentioned at the start, on Friday last week, Revolution responded to Boohoo’s recent complaints. It noted “the very positive reaction from all stakeholders to its shares being restored to trading as a result of the board’s actions”. And it said it “has received positive feedback from a wide group of stakeholders” with this and the share price rise “firmly validat[ing] the actions taken”.
It also said that rather than 74% of shareholders voting against the directors at the AGM, only around 39% of the total shareholder base cast votes at the AGM. The highest number of votes against a resolution at the meeting was around 29% of the company’s share capital. That’s a valid and understandable point to make on Revolution’s part, although on the other hand, it’s undeniable that in any democracy, only the votes that are cast actually count and 74% of them were against the leadership trio.
Revolution also said it “repeats once again its request that Boohoo explain what its future plans and strategy for Revolution Beauty would be if its hostile takeover of the company’s board were to succeed”.
It added that its actions “were the only reason that the company’s shares were re-admitted to trading earlier this week” and that “the directors did not and do not intend to frustrate shareholder democracy but were put in an extremely difficult position by Boohoo’s actions”. The main point was that its actions restored share trading and this “prevented the company from being in breach of its banking agreement”.
It also questioned Boohoo’s own record as far as corporate governance is concerned and said the awards “were made to reflect the hard work and commitment needed over the past 12 months to secure the company’s solvency and restore the trading of the shares on AIM”. Also, no cash bonuses have been paid, with employees agreeing to take their bonus in share options in order “to keep the cash in the business to support growth activities”.
Again, it questioned Boohoo’s own record here and talked of it “most recently awarding the executive team significant cash bonuses even after missing certain financial targets”.
The statement went on to detail how Revolution’s “fortunes are looking up, with business back on track” but referenced Boohoo Group’s own falling share price, worsening net cash position and revenues decline. “These metrics illustrate an interesting position from which to claim that only Boohoo’s strategy and their selected executive management can deliver growth for Revolution Beauty”.
JULY 2023: WHAT NEXT?
The general meeting Boohoo has requested will go ahead this month and it’s likely that the war of words will intensify. Of course, talks behind closed doors could also see tensions being dampened and business leaders — like politicians — are nothing if not pragmatic in certain circumstances. They can be surprisingly flexible when the stakes are high. But there are likely to be at least a few more fireworks!
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