Luxury handbag maker Mulberry has decisively rejected a takeover bid from retail giant Frasers, controlled by billionaire Mike Ashley.

The £83m ($110.3m) offer was deemed undervalued by Mulberry’s board, which received backing from its majority shareholder, Challice.

Mulberry, which has been struggling financially in recent years, announced plans to raise capital from shareholders last week.

Challice, a Singaporean investment company owned by billionaires Christina Ong and Ong Beng Seng, has pledged £10m to the subscription.

"As well as economic pressures across Europe and the US impeding demand for luxury goods, the post-Brexit removal of tax-free shopping in the UK will have also impacted its [Mulberry's] performance," said Alice Price, associate apparel analyst at leading data and analytics company GlobalData.

"While tourists previously enjoyed buying from Mulberry when visiting the UK due to the brand’s strong British heritage, they are now choosing to buy from other designers in European cities such as Paris and Milan, where purchases remain tax-free."

Frasers, which has been expanding its luxury goods portfolio through acquisitions such as THG's luxury goods websites and MATCHES, had hoped to avoid another Debenhams-like situation.

The department store, in which Frasers had invested £150m, went out of business in 2021.

"Mulberry has relied too heavily on classic styles and its heritage status to drive growth. This has led it to lose relevance and follow a similar downward trajectory to fellow heritage brand Burberry, which too has lost appeal in the increasingly saturated luxury market," added Price.

Mulberry's board believes that its recent appointment of CEO Andrea Baldo and its capital raising plans will help it turn around its business.

The company has stated that it has no intention of withdrawing the subscription offer but is open to Frasers participating pro rata.

Frasers now has until 28 October 2024 to make a formal offer or walk away.

The rejection of the takeover bid marks a significant setback for Frasers' ambitions in the luxury goods market.

"As a preexisting stakeholder, coupled with its superior retail expertise and best-in-class distribution capabilities, Frasers should have the expertise required to steer Mulberry back to profitability," concluded Price.

"However, its lack of previous success within the luxury market and limited international perspective pose limitations.”