Mike Ashley’s Sports Direct business today made its latest bid to take control of Debenhams, moments after the department store group unveiled plans for a £200m rescue deal that would give existing lenders more control over the business.
Ashley has offered to pay £100m for Debenhams’ Danish business Magasin du Nord, and in return become the chief executive of Debenhams.
For Ashley, whose Sports Direct International holds a 29% stake in Debenhams, this is just the latest attempt to take control of Debenhams, adding it to a string of acquisitions over the last year.
He has already bought House of Fraser and the Evans cycle shop chain from administration this year. To that he has added Sofa.com, and has an ongoing mandatory bid to buy Findel, owner of ecommerce websites including Studio and Ace, although Findel has said the bid undervalues it.
This latest bid represents one more in a string of attempts to take control of Debenhams that, as yet, fall short of a fully fledged takeover bid. That would be mandatory if Sports Direct’s stake in the Debenhams business reached 30%.
In today’s statement, Sports Direct said it wanted to renew a previous £100m offer for Magasin du Nord, while giving Debenhams the option to buy it back at the selling price for a year. During that time, Debenhams would have the right to market the business with the option to buy it back at the price it would have theoretically sold to Sports Direct – giving it a built-in profit. If this hypothetical came about, Mike Ashley would be well-placed to lead the process – as the chief executive of Debenhams.
Sports Direct said in today’s statement: “It is proposed that Mr Mike Ashley would become a director and the CEO of Debenhams to assist Debenhams through its restructuring process. Sports Direct believes its proposal would provide additional management and first class leadership to Debenhams through this challenging period of restructuring, together with additional funding.”
But Debenhams said, in a statement, that, “as with all other proposals received to date from Sports Direct, it does not address the company’s funding and restructuring requirement, while balancing the interests of all stakeholders.”
It also went on to point out that Magasin was a key part of the Debenhams group and formed a part of its ongoing refinancing, while there were “obvious concerns with the proposal that Mike Ashley becomes CEO of Debenhams given that Sports Direct owns our direct competitor House of Fraser.”
The statement continued: “The board has remained open to engagement with Sports Direct throughout its refinancing process and has provided clear guidance on what would represent workable solutions that would allow Sports Direct to participate while also protecting the interests of other stakeholders. This guidance has been repeatedly ignored by Sports Direct.
“Debenhams continues to make progress with its refinancing and restructuring discussions with existing lenders, noteholders and other stakeholders. The board remains open to constructive involvement from Sports Direct and other stakeholders in this process.”
Multichannel retailer Debenhams is a Leading retailer in IRUK Top500 research.
The Debenhams offer
The latest Ashley bid came moments after Debenhams invited the institutions that already hold £200m of its debt to provide a further £200m in extra financing. That would, says Patrick O’Brien, Uk retail research director at GlobalData, wipe out Sports Direct’s stake in the business. He said: “Should Ashley’s attempt to disrupt Debenhams’ plans fail, landlords will be the other big losers here as the likely pre-pack administration will mean the new owners – the bondholders and other lenders – will be able to exit or renegotiate leases on their stores.
“We think it likely that this will result in a smaller store portfolio than planned, with accelerated job losses, though landlords are becoming much more realistic about renewal terms – yesterday Debenhams’ mid-market rival Next revealed that it negotiated an average of 29% discount on the leases it renewed last year.”
Catherine Shuttleworth of Savvy said the news from Debenhams was “a clear signal that there are a number of parties not keen to see a single operator of the department store sector in the UK.” She added: “This is a step along the journey for Debenhams which has taken many twists and turns over the past 12 months. Financial aspects aside Debenhams can only survive if they provide a compelling proposition to the shopper – which will mean less but better stores, an ecommerce operation that is customer-centric and experiences that shoppers want to be part of.”
Image: InternetRetailing Media/Paul Skeldon