Frasers Group has announced a full takeover offer for Accent Group with no premium at A$0.65. Frasers Group has used the strategy in the past, building up a stake and launching an opportunistic bid with varying success. The offer represents a 3.3x EV/EBITDA multiple (FY26e). Frasers may lift the bid but has exercised patience in the past. The board will say that the offer undervalues the company, holding out for an improved offer in our view. We weight three scenarios at an equal chance of occurring: a full takeover going ahead at a premium to the current offer, a status quo scenario and a Sports Direct agreement termination.

The agreement with Frasers Group gives Accent Group a 25 year licence to operate Sports Direct in ANZ. Frasers Group will also increase its holding in Accent Group to 19.6% providing $60 million in funding for the initial phase of the rollout. With a 50 store within six years target, Sports Direct provides a new growth path with additional sourcing and product benefits for the group.

At a time when core footwear banners for Accent Group appear to be reaching maturity and competition is impacting margins, Frasers Group is looking to establish a physical presence via Sport Direct. Sports Direct creates the opportunity for further store growth with category expansion. With weakness in the core from a lower forecast store count and weaker gross margin, we lower our current earnings forecasts for Accent Group. We have increased the probability weighting to a Sports Direct entry to 90%.