Debenhams is in deep trouble. The department store chain, which has graced UK high streets for more than 200 years, has a towering debt pile of £560m. It is expected to lose £25m this year, and its shares have collapsed to just 2.8p, leaving the business valued at £34m.

The chain desperately needs more cash to keep going – and has very few options to find it. It could be taken over by its lenders, which would wipe out the existing shareholders. Like House of Fraser before it, the chain could collapse into administration. Or it could be taken over by discount sports billionaire Mike Ashley, who is the chain’s biggest shareholder and is fighting hard to keep his £150m investment afloat.

In its latest attempt to wrest control of the ailing chain, Ashley’s Sports Direct on Wednesday said it would pay £61.4m for Debenhams – but only if it immediately installs Ashley as chief executive and ends the financing talks with its lenders that would wipe out his 29% stake in the retailer.

The company is trying to raise £200m in cash to stay in business and win time for an overhaul, under which up to 50 of the group’s 165 stores are likely to close down.

Sports Direct’s potential 5p-a-share cash offer is the latest gambit by Ashley’s sports retail group, which has spent more than a year attempting to seize control of Debenhams in a battle that has already seen him oust the company’s chairman and kick the chief executive out of the boardroom.

Ashley built his stake in Debenhams over the past five years, but in that time the fortunes of the chain have gone into reverse and the share price has tumbled from around 80p.

In January, Ashley told MPs that he had already written off more than £100m of investments in the department store. He now fears completely losing his grip on a major slice of the UK’s high street.

The Sports Direct boss has made no secret of the cost-saving potential he sees in merging Debenhams’ back office functions with House of Fraser, the department store he bought out of administration for £90m in August last year.

On Wednesday, Chris Wootton, the deputy financial officer of Sports Direct, appealed to fellow shareholders, saying they risked having the company stolen from them by the American hedge funds who control Debenhams’ bond debts.

“Debenhams’ shareholders, both major and minority, are sick and tired of being ignored, cast aside and trampled underfoot by the lenders of Debenhams who, through the incompetence or, worse, collusion of the board, are allowing these critical stakeholders in the business to be wiped out. This is the shareholders’ chance to fight back. We reiterate our prior comments that we will leave no stone unturned in pursuing those responsible for this long-planned theft,” he said.

Debenhams’ board is yet to respond, but is likely to find it difficult to accept the terms of Sports Direct’s highly conditional offer.

A Sports Direct statement to the stock market on Wednesday made clear there was “no certainty that an offer will be made for Debenhams, even if the preconditions to the possible offer are satisfied or waived”. Basically, that means that even if Debenhams halts its talks to raise more cash, or agrees to install Ashley as chief executive, he still might decide against making a proper bid.

For now, Debenhams’ board is continuing in its attempts to raise £200m in emergency funding, £40m of which would be used to refinance expensive short-term debt taken on last month. Bondholders have until 5pm on Thursday to approve the fundraising plan.

Earlier this week Debenhams said any takeover proposal from Sports Direct must indicate a clear plan for repayment of Debenhams’ £560m of debts – all of which could be called in on a change of control – as well as a plan to address the business’s immediate funding requirements.

Analysts and insiders remain sceptical that Ashley is serious about making a bid that would involve taking on those heavy debts. “I do not believe Ashley wants to buy this business the way it is. This has become mainly about emotion, about him not wanting to be legged over. He has said nothing about what he is going to do with it,” said Richard Hyman, an independent retail adviser.

He said that Debenhams’ problems partly stemmed from heavy debts and expensive lease agreements signed during a period of private equity ownership before the credit crunch hit. But he points out that sorting out the group’s financial problems won’t make the business more attractive to shoppers, who have been deserting in their droves.

Sports Direct insiders insist that Ashley is serious about a proper bid and is lining up options to refinance Debenhams’ debt.

Ashley has said he has the “first-class leadership” skills to turn Debenhams around. He reckons that his experience and retail muscle as the owner of a string of retailers including Flannels, Evans Cycles and USC, as well as Sports Direct, will both improve trading and help him demand better deals from landlords.

But poor trading at House of Fraser, where key brands continue to pull out of the once upmarket department store as it begins to resemble a discount sports chain, has not helped Ashley win over Debenhams’ bondholders, who are the real decision makers over the company’s future.

Behind the scenes, Ashley has been pushing to be made chairman or chief executive of Debenhams since March last year, when he increased Sports Direct’s stake in the department store to the highest level possible without launching a takeover bid.

As Debenhams teeters on the brink of insolvency, insiders say Sports Direct has consistently avoided becoming part of wider refinancing talks, which would have involved a partnership with the retailers’ debtholders.

Instead, Sports Direct has offered a variety of options including the £100m buyout of Debenhams’ Danish chain, Magasin du Nord, as alternatives to the fundraising plan. Ashley has also called a shareholder meeting at which he wants to oust all but one of Debenhams’ directors and install himself as chief executive.

But Ashley’s latest tactic might prove more fruitful. “For remaining equity shareholders, stuck between the proverbial rock and a hard place, an offer, even of just 5p, might, in the face of potentially zero value under some of the restructuring options Debenhams is considering, be the preferred option,” said Caroline Gulliver, a retail analyst at Jefferies.

There is only one certain outcome from this battle for one of the big names of the high street: stores are going to close and staff are going to lose their jobs.