Debenhams shares fall into the red as investors eye deadline for Sports Direct offer
Debenhams shares dipped five per cent in early afternoon trading today, falling from a 15 per cent rise this morning as the deadline for a pre-pack administration draws near.
The embattled department store chain is set to hand ownership to lenders tomorrow if Sports Direct fails to reach an agreement with the retailer by the end of trading today.
Read more: Sports Direct confirms £150m Debenhams equity offer
On Friday night Sports Direct sent a letter to the board of Debenhams offering to underwrite £150m of new equity funding on the condition that its billionaire owner, Mike Ashley, is made chief executive of the struggling retailer.
The move came after Debenhams secured a £200m refinancing deal with lenders last week, in a move that would mean shareholders including Ashley, who owns nearly 30 per cent of the business, could see the value of their stakes wiped out.
Debenhams said that Sports Direct needed to make an offer, provide debt funding or underwrite a rights issue of new stock if it wanted to prevent creditors from taking control of the department store chain.
However, Debenhams has set out four conditions which Ashley must meet before it will engage with him, Sky News has said.
One of the conditions is that Ashley would need to cast aside his efforts to oust the board.
Read more: Mike Ashley makes legal threat as Debenhams deadline beckons
Another condition is that Ashley must provide a legal guarantee that the £150m he has promised would be provided if Debenhams agrees to his request to take over as its chief executive.
Ian Forrest, investment research analyst at The Share Centre, said: "Mike Ashley’s interest in department store Debenhams shows no signs of waning, as the latest proposal from the Sports Direct CEO makes clear. Shares rose 12 per cent in early trading to 2.3p, but that is scant consolation for those who bought in over 50p two years ago and the risk of shareholders losing everything remains high."
"The refinancing deal with lenders on 29 March made today a deadline by which time Sports Direct, which has almost 30 per cent of the stock, must meet certain conditions in order for Debenhams to receive a further £99m in funding.
"Time is therefore tight and relations between Ashley and the Debenhams board must be pretty dreadful given reports that Ashley has suggested they take a lie detector test about a meeting he had with them. Investors should not allow all of this to distract from the fundamental state of trading in the stores."