German online retailer Zalando said it had struck a deal to buy rival fashion group About You for €1.1 billion, as part of plans to create a pan-European e-commerce platform.
The cash offer corresponds to €6.50 a share, a 107% premium to About You's three-month average stock price. About You's shares closed at €3.90 yesterday.
Zalando's shares fell as much as 9% in early trade, but About You's shares jumped by 65%.
Baader Helvea analyst Volker Bosse said the deal made sense strategically and called it a "bold consolidation step", although it will weigh on Zalando's profitability in the short term as About You is loss-making.
Zalando highlighted About You's enterprise software platform Scayle, which is used by 200 shops across Europe and North America, including optics firm Fielmann and soccer club Manchester United.
Bosse also said the deal would especially help Zalando's business-to-business (B2B) sales segment.
The proposed takeover comes as the rapid growth of low-priced fast-fashion retailer Shein has put pressure on online players across Europe that have struggled to compete on price.
"The planned two-brand strategy would significantly increase the group's presence in the pan-European markets," said About You's major shareholder, German retail group Otto.
The combined business of Zalando and About You aims to have an adjusted earnings before interest and taxes (EBIT) margin of 10-13% over the long term, Zalando said in a statement.
In 2023, Zalando posted an EBIT margin of 3.4%, and it plans for the combined entity to reach 6-8% by 2028.
Zalando said Otto and an investment company controlled by Heartland A/S, as well as About You's board members, who will continue their work in the combined entity, had decided to accept the offer.
Otto brought About You, whose products are tailored for younger audiences, onto the stock exchange three and a half years ago at an issue price of €23 a share.
