Naked Not Getting $25 Million Investment

Naked Brand Group Limited will not be receiving the recently proposed $25 million investment from Sapinda Holding B.V., according to a joint press release.

This, along with the dramatic decline in Naked’s share price, has most likely delayed Naked’s separate plans to make acquisitions in the online retail space, two of which it has discussed recently.

Back on August 28, 2018, Naked announced it had “entered into a non-binding term sheet” whereby Sapinda would end up with about a 20% stake in Naked. At the time, the companies stated the “proposed transaction contemplates an equity investment by Sapinda (or its affiliates or designees) in Naked through a private placement of up to 5,000,000 newly issued ordinary shares” of Naked, “for a price per share of U.S. $5.00. The company will not issue to Sapinda New Shares representing in excess of 19.99% of the total issued ordinary shares of Naked. The issuance of the New Shares is expected to occur through a private placement exempted from registration with the U.S. Securities and Exchange Commission.”

When the market closed on August 28, Naked shares traded at $4.26. At the close of market on October 29, Naked shares traded at $1.25, a decline of over 70%.

“Unfortunately, the recent stock market volatility has compromised our ability to maximize our proposed investment relative to substantial dilution based upon Naked’s current share price,” declared Lars Windhorst, co-founder and CEO of Sapinda, in the latest statement dated October 25. “We hope to re-evaluate the proposed transaction once market conditions stabilize and look forward to building a long-term partnership with Naked in the future.”

When the potential deal with Sapinda was first announced in August, Naked’s CEO, Justin Davis Rice, explained, “If completed, this investment will provide us with additional capital to support our plans to complete accretive strategic acquisitions to better utilize our under-leveraged operating infrastructure. We have identified several attractive opportunities within the eCommerce and direct-to-consumer space that we believe have the potential to create notable shareholder value over the long term.”

The rapid and dramatic decline in Naked’s share price has hurt the company’s ability to complete the acquisitions it has proposed. On September 6, a few days after announcing the possibility of the $25 million Sapinda investment, Naked reported it had “entered into a non-binding letter of intent to acquire a leading U.S. online retailer” of women’s apparel. “The purchase price under the transaction is expected to be U.S. $42.5 million, which would include cash, stock and assumption of approximately $6.1 million of the retailer’s debt.” The name of the online retailer was not mentioned.

BODY has not identified Naked’s acquisition target, but it is possible the company was Bare Necessities, which was later acquired by Walmart in a deal that was announced on October 12. By the close of market on that date, Naked’s share price had already fallen to $1.89, a 45% decline from the price of $3.41 at the close of market on September 6. Since September 6 Naked has not made any further public statement about the possible $42.5 million deal.

Another acquisition target has been mentioned by Naked at several times during 2018, including in a July 26 release. In that document the company described “its proposed acquisition target, FOH Online Corp. (“FOH”), the exclusive licensee of the Frederick’s of Hollywood global online license.” It is not likely that Naked was referring to that entity in the September 6 announcement because of the extreme difference in proposed acquisition prices. The price of FOH Online was described in both an April 27 and August 1, 2018 SEC filings as “1,304,917 Ordinary Shares, plus the assumption by our company of approximately $9,500,000 of FOH Online debt.” Based on the different share prices of Naked shares on those two dates, the total price would have been $17,720,979 or $16,468,256.78 respectively.

Based on the same formula of debt assumption and share price as of October 29, the new price would be $11,131,146.25, a decline of 37% since April 27. It is not known whether the owner of FOH Online, who has not been identified in the Naked documents, is still interested in completing a deal at the new price.

In its August 1 SEC filing, Naked stated, referring to FOH Online, that “the terms of the transaction are still subject to discussion and may be changed as a result of any material positive or adverse change to the business of either party. As a result, the proposed transaction is deemed possible but not yet probable of occurring.” It added, “If FOH Online is acquired, we would acquire certain of FOH Online’s agreements that provide it with an exclusive license to sell certain Frederick’s of Hollywood products through 2020. Currently, we have a sublicense to sell such products through an agreement with FOH Online; upon completion of the acquisition of FOH Online, however, through FOH Online’s agreements, we would have a license directly with the brand owners to sell such products. These agreements include an option to renew each agreement ten times, each renewal for an additional five-year term. Accordingly, we would have the right to extend each agreement through 2070.” — NM