Things are getting ugly at beauty brand Revolution Beauty as it finds itself entangled in a bitter battle with largest shareholder Boohoo.
The past three weeks have seen tooing and froing between the two brands as Boohoo, which owns 26.6% of Revolution, seeks to oust its leadership team and install its own representatives at the helm.
It seems a truce could be on the horizon as the pair are understood to be in talks about a peace deal that would see Bob Holt step down from his role as chief executive.
The twist and turns began late last month when the fashion giant expressed its intention to vote against the reappointment of Revolution Beauty’s CEO, CFO and chair as it sought a requisition of a general meeting in which it put forward a new team “with the right retail, ecommerce and consumer brands experience is required to deliver shareholder value”.
However, a week later at Revolution Beauty’s AGM, the trio were fired to only be immediately reinstated by non-independent executive Jeremy Schwartz.
The drama deepened when the senior executives were rewarded with over 11 million shares, valued at almost £3m, less than 48 hours later.
Boohoo accused the company of a “lack of transparency”.
“This all demonstrates a lack of transparency and actions which are self-serving and not in the best interests of shareholders,” Boohoo said.
However, Revolution hit back calling Boohoo’s actions as “nothing short of value-destructive, opportunistic and self-serving”.
Despite rumours of a settlement swirling in the air, it appears the battle is a long way from over. But how did the beauty business find itself at war?
From highs to lows
Revolution Beauty was the fastest-growing beauty brand in 2019, shooting to popularity thanks to its ‘fast beauty’ model of pouncing on makeup trends and creating quick-to-market, cheap products.
It created ‘dupes’ of coveted products and exclusive collections with popular YouTubers.
The brand, which is stocked in retailers including Superdrug, Boots and even Boohoo, was flying and floated on the stock market with a valuation of £495m in 2021.
All was looking rosey, until the summer of 2022 when Revolution Beauty sounded a profit warning as consumer’s pulled back on discretionary spend and admitted that auditors BDO had flagged accounting issues that could have a “material impact” on its full-year results.
Its shares plummeted to 16.6p at its lowest point – from the 170p they floated at. Shares were in fact suspended from the stock market in September when a probe was carried out.
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The accounting probe into Revolution Beauty revealed that sales had been inflated by £9m to meet annual targets and personal loans had been handed out by co-founders Adam Minto and Tom Allsworth.
Minto, who was the retailer’s chief executive at the time, was replaced by Bob Holt in November “to drive the business forward”.
Just weeks before the accounting issues were found last August, Boohoo unveiled a “strategic investment” in Revolution, taking a 7.1% stake.
At the time, Boohoo said the investment “builds upon the existing relationship” and “reflects [its] belief in the retail growth potential” of the beauty brand.
Immediately after Holt was appointed in November, the online retailer more than doubled its stake to 26.4% becoming its largest shareholder.
Russ Mould, investment director at stockbroker AJ Bell, says: “Boohoo clearly felt that there was potential to acquire a useful asset at a low valuation and let’s face it, the lower the price you pay, the greater downside protection you have.”
He adds that the company’s interest in Revolution Beauty was a “useful diversification in terms of the revenue stream or useful supplement to the revenue streams that they already have”.
An unhappy shareholder
Despite stating it intended to be a “supportive stakeholder and long-term partner” back in November, Boohoo is clearly not happy with its investment.
According to its largest shareholder, Revolution Beauty’s growth is stagnating under its current leadership and the business is failing to move away from its accounting scandal.
Its delayed full-year results for 2022, finally released at the end of May, were “significantly below” its forecasts with an adjusted loss before EBITDA of around £800,000.
The reveal that its half-year losses had narrowed to £28.9m last week have also failed to put out the flames.
The coup has now been staged, and the events of Tuesday’s AGM and Thursday’s free share awards has clearly riled Boohoo even further.
The online giant accused Revolution of a “lack of transparency” and said it wished “to record the serious concerns it has regarding the conduct of the board”.
It pointed out that the near £3m free share awards given to Holt, Lake and Zissman owed once the share suspension had lifted was buried in the brand’s annual report.
The fashion group added the board’s actions “are self-serving and not in the best interests of shareholders”, after Schwartz reappointed the executives 75% of its investors voted against.
Retail analyst Nick Bubb says that Revolution Beauty “had historically been badly managed” but that he suspects Boohoo “has slightly over-played its hand” and, with its own share price languishing in the doldrums, lacks the “firepower to make a full takeover bid”.
However, the coup is far from over as the beauty business is set to hold a meeting on 7 August – as per Boohoo’s request – to vote on the appointment of its own candidates, former New Look chairman Alistair McGeorge as interim executive chairman and Boohoo’s ex-finance chief Neil Catto as chief financial officer.
With the beauty business going head to head with its largest shareholder, it seems Boohoo’s leadership coup is not over yet.
Could this be the beginning of a long-term shareholder revolt? We’ll soon find out as the drama in retail’s most volatile boardroom continues to unfold.
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