The €2bn bid for Hugo Boss launched by Mike Ashley’s Frasers Group has become “more compelling” as the German fashion house’s near-term outlook softens, analysts have said.

The takeover offer, tabled by the FTSE 250 firm earlier this month, proposed to exchange €38 per share for the equity in Hugo Boss it does not already own. 

Frasers already has a 26 per cent share of Hugo Boss’ voting rights and its bid amounted to a €1.98bn approach, valuing the fashion house at €2.7bn in total.

The German fashion house is understood to be reviewing the offer, which it said “had not been coordinated with the company”.

Launching its takeover bid, Frasers said that the Frankfurt-listed firm is currently “undervalued” by the market and should prioritise increasing its valuation to return more value to shareholders. 

‘Modest’ four per cent premium

Frasers, which is majority owned by British billionaire Mike Ashley, has spent years building its stake in Hugo boss, which now sits just below the 30 per cent threshold at which it would have to launch a formal bid.

Analysts initially voiced a tepid response to the approach by Frasers, with analysts at Panmure Liberum saying the “modest” four per cent premium suggested the fast fashion company was “seeking optionality rather than necessarily full control”.

But analysts at Shore Capital praised the strategic move, writing that the bid “enables further ownership investment without tripping a mandatory bid in a disorderly manner”.

Other analysts have suggested that Frasers Groups’ approach offers more value than initially thought. 

Andrea Leggieri and Charles Allen, analysts at Bloomberg Intelligence, said that they expect consensus for Hugo Boss’s earnings to drop by about five per cent unless further cost cuts offset its expectation of weakening sales.

In December, Hugo Boss launched a strategic overhaul aimed at delivering “sustainable, profitable growth” and accelerating cash generation. 

Hugo Boss sales fall in short term

The fashion house said it expects currency-adjusted sales to fall by mid to high single digits this year as a result of the “deliberate realignment,” before returning to growth next year.

Its sales fell by six per cent year on year to €905m in the first quarter of this year, as it reaffirmed full-year earnings targets of between €300m and €350m.

But the analysts at Bloomberg Intelligence said: “The December iteration of its growth strategy relies heavily on store closures, and has few visible levers to lift sales beyond low-single-digit growth at best after the 2026 reset.”

The German firm’s store closures “won’t necessarily mean it can subsequently grow sales enough for operating leverage,” the analysts said, “making Frasers’ offer look more compelling in hindsight”. 

Hugo Boss has said that it is prepared to weather a short-term fall in sales in the interest of long-term growth.

Shares in the German fashion house inched up by 0.2 per cent to €38 on Tuesday and London-listed Frasers jumped 0.5 per cent to 715p.