The latest twist in the long-running saga over the future of Debenhams emerged this morning, with Mike Ashley’s Sports Direct revealing that it is considering making a firm takeover offer worth £61.4m, although it would come with several conditions.
Sports Direct, which already owns a near 30% stake in the ailing department store chain, would offer 5p per share, more than double Tuesday’s closing share price of 2.2p.
However, the potential offer is conditional on Debenhams immediately appointing Ashley as Chief Executive and the termination of an emergency fund raising plan announced last week which would see shareholders having their stakes wiped out and lenders taking over the business. Sports Direct added that a firm offer would only be made if Debenhams agreed not to enter into any other third party funding arrangements or enter any administration, CVA or other insolvency process.
The group stated that its possible offer would assist Debenhams in addressing its immediate funding requirements, and that it was likely to be attractive to shareholders and other stakeholders as an alternative to the current restructuring and refinancing process.
Debenhams said this morning that it was not making a statement at present. Yesterday it said that any proposal received from Sports Direct would receive “due consideration” but that it would continue talks over the refinancing.
The group has been resisting Sports Direct’s recent approaches whilst pursuing its own turnaround plan. Ashley has already offered to lend Debenhams £150m or buy its Danish chain Magasin du Nord for £100m to prop up the group’s weak finances. However, both offers have been conditional on the retailer making him Chief Executive.
Shares in Debenhams surged by 80% to above 4p-per-share in early trading this morning before losing some of that ground.
Laith Khalaf, a senior analyst at Hargreaves Lansdown, commented: “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.”
He added: “This is not conventional corporate behaviour by any means, but that’s what we’ve come to expect from the Sports Direct chief executive. 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.”
Patrick O’Brien, UK Research Director at GlobalData, added: “While Mike Ashley’s desire to buy Debenhams and merge it with House of Fraser is clear, his talk of a £61m offer, without actually making one, is hard to take too seriously.
“The proposed 5p a share would represent more than double the price Debenhams shares were trading at yesterday, but would also involve the taking on of over £500m of debt and over £4bn in lease liabilities, so hardly a cheap way of supercharging his plans to create a Harrods of the high street. We do not believe that he would make a formal offer unless he was sure there was a way to avoid being on the hook for all of it – there are ‘change of control’ clauses in Debenhams debts that would make them immediately repayable.
“Having already offered £100m cash for its Danish chain Magasin Du Nord, which, like this possible offer, is conditional on Mike Ashley becoming CEO and the immediate halting of the refinancing program, Ashley is hellbent on derailing the debt-for-equity swap which would destroy his chance to create a ‘House of Debenhams’, and further moves are to be expected.
“Shares are up 50% today in reaction to the possible offer, but bearing in mind that the default position from Debenhams would wipe out shareholders, investors building a position are taking a high stakes gamble.”
NAM Implications:
- If a takeover succeeds, and given the lack of alternative sources of funding…
- …the result is going to be rough, very rough…
- …and may be no place for NAMs of a gentle disposition….
