Debenhams has dismissed a bid for its Danish stores from Mike Ashley as it confirmed plans to raise £200m in fresh loans in a deal that could wipe out shareholders including his Sports Direct group.
Sports Direct said it had offered at least £100m for the Magasin du Nord chain, in an apparent attempt to hand Debenhams’ board an alternative to a rescue deal involving a debt for equity swap.
On Friday, Debenhams confirmed its plan to borrow up to £200m more would give it time to restructure but could wipe out shareholders, including Sports Direct, which has a near-30% stake and is vying to take control of the department store group. This month Sports Direct called a shareholder meeting in which Ashley is seeking to oust all but one Debenhams director and install himself as chief executive.
In a stock market statement on Friday, Debenhams said it was considering a number of options but “certain of these options – if they materialise – would result in no equity value for the company’s current shareholders”.
The company, which is teetering on the brink of administration and has seen its share price dive in the past year, already has £520m of long-term debt, which must be refinanced by next year, and is encountering cash flow problems as suppliers demand upfront payments amid uncertainty over its future.
Sports Direct said it had offered to buy the Danish chain “in order to assist Debenhams with its short-term liquidity requirements”, with the offer understood to have been made this week.
It suggested the £100m offer for Magasin, which the department store attempted to sell for more than £200m before Christmas, could be increased if Debenhams provided further details. Under the Sports Direct plan, Debenhams would have a 12-month option to buy back Magasin at the price at which it was sold to Sports Direct.
But in a day of tit-for-tat statements, Debenhams said it had told Sports Direct that “as with all other proposals received to date from Sports Direct” the Magasin gambit did not address the company’s funding and restructuring requirements, while failing to balance the interests of all stakeholders.
It said Magasin was a key part of the Debenhams group and therefore an important factor in any deal with lenders, while it flagged concerns that Ashley already controls one of the Debenhams’ main rivals. It added there were “obvious concerns with the proposal that Mike Ashley becomes CEO of Debenhams given that Sports Direct owns our direct competitor House of Fraser”.
“The board has remained open to engagement with Sports Direct throughout its refinancing process and has provided clear guidance on what would represent workable solutions that would allow Sports Direct to participate while also protecting the interests of other stakeholders. This guidance has been repeatedly ignored by Sports Direct,” the statement said.
Patrick O’Brien, UK retail research director at industry analysts GlobalData, said: “Mike Ashley’s attempt to create a ‘House of Debenhams’ looks doomed to be an expensive failure after Debenhams revealed its restructuring plans.”
If Debenhams’ bondholders seize control of the company, that would stand in the way of Ashley’s plan to combine Debenhams with House of Fraser, the department store he bought out of administration for £90m last year.
On Friday, Sports Direct reiterated its call for Ashley to be made chief executive in order to assist Debenhams through its restructuring process.
The statement said: “Sport Direct believes its proposal would provide additional management and first-class leadership to Debenhams through this challenging period of restructuring, together with additional funding.”
Debenhams’ board has resisted Ashley’s attempts to install himself as chief executive and offer cheap loans as it sees them as an attempt to wrest control of the company on the cheap.
Ashley’s effort to take charge of Debenhams is also complicated by the terms of some of its loans and bonds, which enable lenders to push the company into administration if there is a change of control.
