Why did AO shared jump 8% today?

AO World shares (LSE: AO) rallied 8.9% today following the announcement of a new partnership with Frasers Group.

The increase in share value was primarily driven by Frasers Group’s acquisition of a significant stake in AO World last Friday. Frasers Group, the retail empire owned by Mike Ashley, revealed that it had invested £75 million to purchase AO World shares at a price of 68 pence each, equivalent to 18.9% of the online electricals seller’s business.

The chief executive of Frasers Group, Michael Murray, stated that this strategic deal would provide opportunities for growth in their bulk equipment and homeware ranges. By joining forces with AO World, Frasers aims to leverage the expertise and market presence of the online retailer to expand its product offerings in these sectors.

This investment comes after an extended period of discussions between AO World and Frasers Group. Frasers Group has a history of acquiring stakes in various notable brands, with Ashley’s company known for purchasing struggling businesses. Previous acquisitions by Frasers Group include House of Fraser, Jack Wills, Studio Retail Group, and Gieves & Hawkes.

John Roberts, founder and CEO of AO World, expressed his delight at welcoming Michael Murray and the wider Frasers team into the AO family. He highlighted the potential for significant growth resulting from this partnership. Roberts further stated that as AO World continues to execute its strategy of transitioning towards profitable growth, collaborating with Frasers Group opens up compelling strategic opportunities. The company looks forward to working closely with Michael Murray and his team.

The positive news of Frasers Group’s investment in AO World follows another recent development involving Frasers Group. Prior to the AO World deal, Frasers Group had increased its stake in struggling online fashion retailer Asos to nearly 10%. This move raised speculation that Frasers Group might be planning a full takeover of Asos, which has faced challenges due to a decline in online clothing purchases following the easing of Covid-related restrictions and cost-of-living issues. Asos shares have experienced a significant decline of over 93% in the past two years.