Sports Direct says it is considering paying £43 million to take full control of Debenhams in an attempt to avoid a financial restructuring which could see its stake in the business wiped out.
In a statement released late last night, Mike Ashley’s retail group said it was contemplating a “possible firm offer” for the 70% of Debenhams that it doesn’t own.
The proposed price would be 5p for every ordinary share - valuing the troubled department store chain at £61.4 million. Shares in Debenhams closed at 2p yesterday evening.
Debenhams said yesterday that it would give due consideration to any firm offer, however this is a “possible” offer and may never materialise.
Sports Direct insists it will only be tabled if the board of Debenhams “immediately” installs Mike Ashley as the new chief executive and abandons its plans to refinance and restructure the business. Neither of these things are likely to happen.
The board of Debenhams, led by Terry Duddy, is in the process of securing £200 million of new lending as part of a rescue package that appears to have been structured in a way that will wipe out Mike Ashley who owns a 29.7% stake in the company.
The company and its lenders are widely thought to be putting the finishing touches to plans for a pre-pack administration which would sweep away all shareholders as well as many other unsecured creditors and leave the company - currently listed on the London Stock Exchange - privately owned by its lenders.
Debenhams has long-term debt of more than £500 million, which must be refinanced next year - some of it owned by the hedge funds Silver Point Capital and Alcentra. Debenhams has cash flow problems and has issued a series of profits warnings in the last twelve months as sales have declined.
In the statement Sports Direct said shareholders are “sick and tired of being ignored, cast aside and trampled underfoot by the lenders of Debenhams.”
The statement accused the board of Debenhams of “incompetence, or worse collusion” - conspiring with lenders to cook-up a plan to take shareholders out.
Chris Wootton, Deputy CFO of Sports Direct said, “we will leave no stone unturned in pursuing those responsible for this long planned theft”.
It’s strong stuff but sounds a little like a howl of defeat.
Even if Ashley were to succeed in hoovering up all of Debenhams shares, he’s not proposing to pay-off the company’s lenders.
Their debt (in the form of bonds and loans) gives them significant power.
They could push the company into administration if Ashley seizes control.
Either way he gets wiped out.
In the last six months Mike Ashley has made repeated attempts to overthrow the Debenhams board. In January, he managed to force the resignation of the chairman, Sir Ian Cheshire, at the company’s annual General meeting.
More recently, he’s offered to lend the company £150 million, conditional on it making him chief executive. Separately, he requested an emergency meeting of shareholders to unseat all but one of the board’s directors.
The board of Debenhams believes its biggest share holderhas become one of its biggest problems. They look set to get rid of him before he can get rid of them.
Quite what the 25,000 people who work for Debenhams make of all this is anyone’s guess. Whoever ends up owning the business it is unthinkable that it can survive in its current form. Shop closures on one scale or another are inevitable.