It will also purchase £30mln of stock upfront to support initial trading before it migrates the brands into its normal working capital cycle, while it expects one-off restructuring and transaction costs of £20mln.
READ: UK high street goes online as boohoo buys Debenhams and eyes Arcadia brands, ASOS is frontrunner for Topshop
The AIM-listed retailer did not mention the high street stores in its update, as they are out of the equation considering it is a pure-play online platform.
This will lead to thousands of job losses, although ASOS said it will transition 300 former Arcadia employees across design, buying and retail partnerships.
The plan is to transform these iconic names into “digital-first” brands, ASOS said, which will allow for a wider reach of customers as they have an established presence in the US and Germany as well as the UK.
In fact, the e-commerce giant plans to maximise the opportunity for the brands’ global distribution with its own warehouses but also through partnerships, such as the one with department stores chain Nordstrom in the US.
In 2019, the four brands delivered total revenues of approximately £1bn across all channels, though sales plunged to £265mln in 2020 because of the coronavirus (COVID-19) pandemic.
ASOS expects 2021 incremental earnings to be offset by initial investment and ramp-up costs, 2022 to be broadly flat to 2020 but the transaction will deliver a double-digit post-tax return on capital in the first full year.
Arcadia folded with an estimated £350mln pension black hole that owner Philip Green is under pressure to plug, and is now being managed by administrators at Deloitte, who were expecting the final bids last Monday. Up to 13,000 jobs are at risk across the group.
“While the price being paid by Asos is relatively higher than similar recent acquisitions done by boohoo group (Warehouse, Oasis, Karen Millen, Coast, Debenhams, etc.), these are much more established brands,” analysts at Liberum commented.
“The brands strong growth on the Asos platform shows that with the right product (curated by Asos) presented to the customer on a large platform like Asos, and backed by its level of customer service, could go a long way in re-establishing the position of these brands. The acquisition will also allow Asos to sweat its warehousing infrastructure better and extract more operating leverage out of them.”
Shares jumped 3% to 4,590p on Monday morning.
–Adds analyst comment, shares–