5th Feb 2024 21:47
(Alliance News) - While Revolution Beauty Group PLC should be free to focus on growing the business after reaching a settlement with its former chief executive, legal action remains a potential threat, argues AJ Bell's Russ Mould.
According to the London-based cosmetics retailer on Monday, former Chief Executive Adam Minto has agreed to pay the company GBP2.9 million to settle a dispute. The settlement in question the settlement relates to events which led to the delay of the audit of the financial year 2022 results, as well as the suspension of trading of the group's shares on AIM, during Minto's time as CEO.
Revolution had previously said in June that it would be bringing legal proceedings against Minto regarding his alleged breaches of fiduciary responsibilities. Minto, who is also the co-founder of Revolution Beauty, will pay the GBP2.9 million sum in six equal instalments of GBP483,333.35 between March 2024 and March 2029.
"Reaching a settlement with former chief executive Adam Minto should have been the last task in a cleaning-up exercise for Revolution Beauty. However, nothing is that straightforward when it comes to the makeup, skincare and hair products group," said AJ Bell's Russ Mould.
"With all these issues having now been resolved, Revolution Beauty should have been free to focus on growing the business, and an investor meeting to outline the strategy is scheduled for later this week. In theory, this could have also been the point at which Boohoo considers the company to be de-risked and therefore ripe for a takeover."
Mould emphasised the prospectivity of a buy from Boohoo, which has built up a 27% stake in Revolution since 2022.
An acquisition, Mould explained, could both strengthen an existing sales relationship, and save cash over the long term by "getting rid of Revolution Beauty's stock market listing and running the two companies on one platform". A cash exit could also prove useful for Adam Minto and former Chair Tom Allsworth, who each own just under 16% of the company.
Nevertheless, the threat of potential legal action by Chrysalis Investments "throws a spanner in the works".
On Friday, Revolution Beauty confirmed that it had received a pre-action claim from one-time shareholder Chrysalis Investments Ltd, which accused the cosmetics retailer of "negligent misstatement and/or misrepresentation".
Revolution Beauty "strongly" contested the allegations, and said it had engaged with Chrysalis's advisers. The company added that it had received a letter from investment firm Chrysalis, though the latter has not yet kicked off legal proceedings.
Chrysalis bought into the AIM listing in July 2021, purchasing around GBP45 million worth of shares, and sold its holding in "late 2022" for roughly GBP5.7 million, so about GBP40 million off what it initially paid.
Chrysalis said: "The original share purchase was made on the basis that information provided to the company by Revolution prior to the company's purchase of the shares in Revolution, and during the period in which the shares were held prior to their sale, contained misstatements and material omissions."
Chrysalis said it wrote a formal letter to Revolution Beauty in November of last year, requesting a response within 28 days.
"A response has recently been received asking for a further 28 days to provide a response. The company is now considering next steps with its retained lawyers, Travers Smith," Chrysalis said.
As Russ Mould argued: "Chrysalis' statement last week implies Revolution Beauty may have misled investors during the period it was a shareholder. While formal legal proceedings have not been initiated, the prospect of this happening would certainly stop Boohoo from wanting to make a takeover until the matter has gone away."
By Holly Beveridge, Alliance News reporter
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