Majestic Wine ended its search for a chief executive yesterday by spending £70m on its online rival Naked Wines to put the latter’s boss and founder, Rowan Gormley, in the retailer’s top job.
Around £20m of the purchase price will go to Mr Gormley, who is taking the proceeds in new Majestic shares, which will vest over three years. Majestic is paying the remaining £50m in cash to settle £30m of bank loans and pay £20m to a German wine family that owned a third of the business.
Mr Gormley, a former banker, set up Virgin Money and the Virgin One account for Sir Richard Branson before finishing his 13-year career with the entrepreneur by becoming his wine merchant through founding Virgin Wines.
At Naked Wines he has proved he can do it on his own – and with a new concept. The company has 300,000 “angels” on its books who pay a monthly subscription of £20 to be able to buy wines from 130 winemakers at discounts ranging from 25 per cent to 50 per cent.
Through this arrangement, the company has helped a number of young and forward-looking winemakers to strike out on their own and provide its customers with innovative new products.
However, the business is still lossmaking , reporting a £3.3m deficit before interest, tax and one-offs – although it is profitable in Britain. Naked Wines as a group – it also has operations in the US and Australia – is expecting to break even next year. Last year its sales rose 40 per cent to £74m.
The Majestic chairman Phil Wrigley denied that the deal amounted to the £70m acquisition of a chief executive: “Genuinely we bought the business first. We need it. We need to move the dial – to get something like this which gives us first-mover advantage.”
For that, his shareholders will pay a heavy price. They will have to do without dividends for the next couple of years and the deal is not expected to be earnings enhancing until 2017.
The company also warned that profits for the year just ended will be £1m less than had been expected at around £21m, in part due to the strength of sterling against the euro.
But while the shares fell by as much as 5 per cent on the announcement, they staged a quick turnaround to finish up 5.5p at 323.25p on the day.
Both Mr Wrigley and Mr Gormley have said that the two businesses will be run independently. And there are no plans at present for Naked wines to be sold in Majestic outlets, although Mr Gormley said it was early days: “I’ve only just got my foot in the door.”
What will come online quickly, however, is a click-and- collect service that will enable Naked Wines customers to pick up their purchases at Majestic stores. “There’s surprisingly little overlap between the two sets of customers,” said Mr Gormley. “We can do that in places like London, where a home-delivery model doesn’t always work well for them.”
He also sought to reassure Naked Wines customers, who might be nervous that the idiosyncratic business they have supported could get swamped by its new parent – the fate of too many independent wine businesses bought out by larger companies. “What you will get is a combination and not some love child. The idea is that both companies do what they do pretty well. I really don’t see a conflict here. They will retain unique identities but they will be able to share knowledge.”
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