Debenhams shares skyrocket as Sports Direct mulls £61.4m bid
The future of Debenhams is up in the air this afternoon as Mike Ashley battles with creditors to take control of the embattled department store chain.
The Sports Direct boss and retail tycoon, who owns a near 30 per cent stake in Debenhams, revealed yesterday that he was mulling a £61.4m bid to take full control of the business, sending shares up 60 per cent.
The potential all-cash offer of 5p per share is Ashley’s latest attempt to snap up the firm and prevent his stake from being wiped out by a £200m rescue deal currently being pursued by the company and its lenders.
Debenhams has not responded to the potential offer, which is conditional on Ashley taking over as chief executive and the chain abandoning its refinancing talks.
In the firm’s latest surprise statement to the London Stock Exchange, Sports Direct has said that it is mulling a 5p per share offer for the troubled department store chain.
"The possible offer, if made, would represent a premium of approximately 127 per cent to the closing price of Debenhams shares on 26 March 2019," Sports Direct said.
Sports Direct reiterated that the offer is "pre-conditional upon Debenhams immediately appointing Mr Mike Ashley as its chief executive".
Shares rose 58.3 per cent in early trading, taking Debenhams' share price up to 3.48p – more than double the value of its Friday close of 1.54p.
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Through options such as a pre-pack administration or a debt-for-equity swap, Debenhams is seeking to agree a major refinancing deal to pay down its debt with creditors.
Alternative offers from Ashley, including a £150m loan as well as a £100m offer for the company’s Danish arm, have so far been rejected by the Debenhams board, which has flagged concerns over whether the House of Fraser owner should run its biggest rival.
"The attempts to restructure the business have been going in since the end of quarter three last year, with a tug of war going on between Debenhams management and their largest shareholder, Sports Direct," said Michael Hewson, chief market analyst at CMC Markets UK.
Hewson added: "While Mike Ashley’s attempts to take over Debenhams can be construed as an attempt to preserve the value of his stake in the business, which isn’t an unreasonable position to take, the fact is if he gets it wrong he’ll end up losing more than his initial stake, which would appear to suggest that Debenhams management reluctance to engage is driven more by personality than in any sense an attempt to safeguard existing shareholder interest.
"Whatever the choices the stakes remain high with numerous store closes likely to result, whichever way it goes, which means that the eventual victims in this tug of war will still be the staff on the shop floor."
Laith Khalaf, senior analyst at Hargreaves Lansdown, said Ashley’s offer appears generous but comes with “strings attached” – namely appointing him as Debenhams’ new boss.
He argued that it puts Debenhams in a quandary.
“The Debenhams board are bound by their duty to shareholders to give this proposal proper consideration, though it’s not as yet a firm offer for the company. There’s a bit of a chicken and egg situation here too,” he said.
“If Debenhams appoints Mike Ashley as chief executive, then there’s little to bind Sports Direct to making a firm offer.
“This is not conventional corporate behaviour by any means, but that’s what we’ve come to expect from the Sports Direct chief executive,” Khalaf added.
“What we haven’t had from either Mike Ashley or Debenhams is a strategic plan for the long term future of the company, and today that still remains sadly lacking.”