Debenhams shares suspended as it prepares to fall into administration
Debenhams’ shares were suspended this morning as it prepares to go into administration, falling into the hands of lenders after rejecting an improved equity offer from Sports Direct.
Read more: Debenhams shares slump as shareholders risk losing everything
The Financial Conduct Authority temporarily suspended trading of the under-fire department store “at the request of the company” as the London Stock Exchange opened for business, with analysts warning its stock price could hit zero by the end of the day.
Debenhams warned shareholders are set to be wiped out as a last-ditch bid from billionaire Mike Ashley made in the early hours of this morning failed to avert the administration.
Ashley’s own 30 per cent stake, held through his Sports Direct firm, is almost certain to be reduced to nothing once discussions with lenders over the terms of administration conclude later today.
Shares were worth just 1.83p at yesterday’s market close, a huge drop from their 95.8p peak in June 2015.
Meanwhile, Debenhams rejected a last-minute offer from Sports Direct to underwrite £200m of equity value in the early hours of this morning.
Sports Direct had scrambled to improve on its weekend offer to underwrite £150m in equity for shareholders late last night, telling Debenhams it would underwrite £200m in an effort to buy time.
Ashley reduced his previous demands, asking lenders to write off £82m of Debenhams’ £720m debt pile, instead of the £148m his firm had previously demanded.
But the struggling high street stalwart would also have to have made Ashley its new chief executive, prompting urgent discussions yesterday between Debenhams' board and the hedge funds who have loaned it cash.
However, Debenhams said today: “The company's lenders have confirmed to the company that the proposal, on the terms set out, was not sufficient to justify an extension to the 8 April deadline.”
The rejection leaves Debenhams set to fall into the hands of its lenders, wiping out Ashley’s 30 per cent stake in the business, along with all other shareholders’ equity.
Lenders have already kept Debenhams afloat with £101m in funding, but to secure the remaining £99m Debenhams must allow them to take control of the company.
“This outcome would result in no equity value for the company's current shareholders,” Debenhams reiterated this morning.
Laith Khalaf, senior analyst at Hargreaves Lansdown, said today marked “endgame” for the retailer, with lenders firmly in control.
He added that Debenhams’ quick dismissal of Ashley’s latest overture “suggests that Debenhams simply isn’t interested in what Sports Direct has to offer”.
“Mike Ashley’s tactics haven’t exactly been conducive to a convivial negotiation between Sports Direct and Debenhams, but nonetheless the business proposition should be judged on its own merits,” he added.
The retailer is now in discussions with lenders, including US hedge fund Silver Point Capital, with a further update expected later today.
Sports Direct is still considering a much-vaunted 5p-per-share £61m bid for the firm by a 22 April deadline, however, though billionaire Ashley’s current stake is now set to be squashed.
The firm urged Debenhams to “engage with Sports Direct to find a solvent solution for Debenhams which is in the best interests of all of Debenhams stakeholders”.
But analysts warned the future direction of Debenhams appears to be be set in stone.
“A pre-pack administration seems to be the only course open, barring some kind of miracle,” said Chris Beauchamp, chief market analyst at IG.
Read more: Sports Direct says Debenhams has rejected £150m equity offer
“Beyond the tussle between Mike Ashley and the Debenhams board, the broader outlook for the UK high street remains grim, with today’s developments likely to send a chill through investors in the sector.”
Khalad added: “It looks like Mike Ashley has one final card to play, and that’s making a firm takeover offer for Debenhams. Even that seems unlikely to shift the retailer from the course it’s currently on, as it sounds like the department store is preparing to enter administration imminently.
“There’s a good chance Debenhams shares will end the day with a price tag of zero.”