Sports Direct makes bet with stake in Tesco
MIKE ASHLEY has made a £43m bet that shares in ailing supermarket Tesco will bounce back after the discovery of a £250m black hole in its accounts sent shares tumbling 16 per cent this week.
The billionaire’s retail empire Sports Direct has entered into a put option agreement with Goldman Sachs over 23m shares in the supermarket giant, which is equal to a 0.3 per cent stake.
The complex deal means if Tesco’s shares rise above an agreed price – known as the strike price – when the put expires, Sports Direct will be paid a premium from Goldman Sachs.
But if shares in the retailer fall below the strike price, Sports Direct will have to buy the shares at the higher strike price or pay the difference in cash. The group’s maximum exposure to Tesco was about £43m, it said.
Sports Direct said the investment reflected its “growing relationship with Tesco and belief in Tesco’s long-term future”. The expiry date and the strike price were not disclosed.
It is the second time this year the maverick boss has taken a punt on a troubled retailer after taking out a put option on Debenhams.
Tesco was dealt a further blow yesterday after Adrian Bailey, chairman of the business select committee, told BBC Radio 5Live that top executives could face a grilling over the profit error and its relationship with suppliers.
ASHLEY: KEEPING SHOP OR PLAYING THE MARKET?
MIKE Ashley is known by most for being the controversial owner of Newcastle United and the founder Sports Direct. But his real claim to fame could well be said to be his maverick approach to running a FTSE 100 retailer and using the company to make opportunistic moves on the market – not all of them successful.
Ashley was hit the hardest in 2008 when he reportedly lost £300m after taking a series of huge positions in HBOS with several spread-betting firms, only for the bank’s share price to plunge and be rescued by Lloyds.
But his more successful moves arguably include his investment in House of Fraser this year, which came just before the department store was sold off to Chinese investors.
In 2013, Sports Direct also bought retailer Republic from administration and with it several brands, including SoulCal and Fabric.
In January, Sports Direct bought a 4.6 per cent stake in Debenhams, only to sell it four days later for a tidy profit. The move allowed the group to take the costs of holding a stake in Debenhams off the balance sheet while also potentially getting a larger stake at a lower price.
While that bet doesn’t look to have played out too well so far – with Debenhams’ share price down around 17 per cent this year – it has paved the way for Sports Direct to put concessions in Debenhams’ stores.