Debenhams entered into a pre-pack administration today and was then sold to its lenders after rejecting an improved last-minute offer from Sports Directs’ Mike Ashley to pump £200m into the ailing department store chain.
After Debenhams rejected a £150m funding offer from Ashley yesterday, his Sports Direct unit put forward a revised proposal in the early hours of today to underwrite an equity issue of £200m. However, the latest offer was turned down by lenders as it was “not sufficient” and still tied to Ashley being appointed Chief Executive of Debenhams, something they opposed.
The department stores shares were then suspended this morning at its own request with it subsequently announcing the appointment of administrators from FTI Consulting. The sale of the group to a newly incorporated company, controlled by its secured lenders, was then completed. The deal was worth £101m, together with debts of £520m plus the company’s pension obligations.
The move will see shops continuing to trade but the business is now under the control of its lenders which are made up of High Street banks and US hedge funds. As a result, shares in Debenhams have become worthless with Ashley’s 29% stake, which cost about £150m to build up, being wiped out.
The administrators stated that the lenders would look to sell the business as soon as possible.
Debenhams is now expected to accelerate the planned closure of around 50 of 165 outlets and renegotiate rents with landlords to put the business on a more sustainable financial footing to enable it to push ahead with its turnaround strategy.
Under its new ownership, the group will have available to it significant additional funding in line with the £200m new money facilities announced at the end of last month.
Terry Duddy, Debenhams’ Chairman, said: “It is disappointing to reach a conclusion that will result in no value for our equity holders. However, this transaction will allow Debenhams to continue trading as normal; access the funding we need; and proceed with executing our turnaround plans, whilst deleveraging the group’s balance sheet. We remain focused on protecting as many stores and jobs as possible, consistent with establishing a sustainable store portfolio in line with our previous guidance.
“In the meantime, our customers, colleagues, pension holders, suppliers and landlords can be reassured that Debenhams will now be able to move forward on a stable footing.”
Commenting on the move, Sofie Willmott, Senior Retail Analyst at GlobalData, said: “The cash injection from the new owners will not be enough to turn around the failing department store’s fortunes. Although Sergio Bucher’s Redesigned strategy, announced almost two years ago, addresses the retailer’s problem areas, it has not been rolled out fast enough and as a result most consumers have seen little change at Debenhams, other than a minor adjustment to its logo.”
She added: “Following weeks of bickering with Sports Direct, Debenhams has escaped the hands of Mike Ashley with any plans for a ‘House of Debenhams’ now firmly up in smoke. Given the changes to House of Fraser since its acquisition by Sports Direct in August 2018 with stores looking empty of both stock and shoppers, Debenhams has indeed been rescued by lenders – though store closures are inevitable. The business will still require significant investment to stand a chance of regaining consumer interest.”
NAM Implications:
- Any NAM that could not see this coming…
- …and taken normal credit issue precautions…
- …needs to check over the past few months of NamNews Debenham-mentions.
- Best to conduct regular checks of all major customers…
- …by calculating the incremental sales required to replace profits lost when a customer goes bust.
- NB. Department stores with notable exceptions (Selfridges, Harrods, possibly JLP) are operating business models that are well past sell-by…
