Debenhams has told Mike Ashley’s Sports Direct that if it wants to hold on to its stake in the company it must make a full takeover bid or inject new money as part of a £200m rescue package.
The statement was issued hours after Ashley launched a stinging attack on advisers to the department stores group, saying they should be jailed after Debenhams shrugged off a possible takeover bid from Sports Direct in favour of pressing ahead with its rescue funding plan.
“I think that if there were any justice in the world the majority of the advisers would be put in prison,” Ashley said in a brief statement.
Sports Direct has been given until 8 April to decide whether to meet the demands or face having its 29% stake is wiped out as Debenhams’ lenders take control of the department store’s equity. Ashley spent about £150m building the stake. The billionaire, who bought House of Fraser out of administration last year, believes that together the two department store chains could be turned into a far better business.
Debenhams said on Friday it had agreed £101m of immediate new money from its lenders, £40m of which would replace a short-term loan taken out last month. A further £99m is subject to Ashley’s sports retail group agreeing to either a firm offer for the company, including refinancing all its debts and providing new working capital, or the provision of a minimum of £200m in new funds via a loan or participation in a rights issue.
In its statement, Debenhams said the second tranche of cash would not be forthcoming unless Ashley cancelled his call for a shareholder meeting, at which he wants to oust all but one of the board and install himself as chief executive.
Terry Duddy, the chair of Debenhams, said: “We are pleased to have agreed this comprehensive funding package which secures the future of the Debenhams business and provides reassurance for Debenhams’ employees, pension holders, suppliers, lenders and other stakeholders. We have also preserved a route for our shareholders to participate in the future of the business but this requires the support of our major shareholder.”
Not all employees, however, will be reassured by the outcome. About the 30% of the 165 stores are likely to close, which will cost thousands of jobs. Debenhams employs 25,000 workers.
The department store chain, which has been losing customers and sales at a drastic rate, said that if Sports Direct did not agree to provide new funding, ownership by the group’s lenders would be the best way to ensure “stability and continuity of trading”. The group acknowledged that its shareholders would be wiped out but said the arrangement would be best for the business, its customers, employees and suppliers.
Debenhams has been battered by tough trading conditions on the traditional high street – higher costs and the effect of shoppers moving online – and simultaneously struggling with a huge debt pile.
On Wednesday, Sports Direct said it would consider making a £61.4m offer for Debenhams on condition that Ashley was immediately appointed chief executive.
On Thursday, however, Debenhams’ bondholders agreed to alter the terms of some of their bonds in a move that gave the retailer the green light to press ahead with its £200m rescue plan.
Debenhams has debts of £560m and is expected to lose £25m this year. Its shares have collapsed to only 2p – from 95p four years ago – and it is in urgent need of cash to keep trading.
The chain had already announced that 50 of the group’s 165 stores were expected to close as part of its survival plan. On Friday, the company said the next phase of its restructuring would involve the “critical component” of closing stores and reducing rents, and getting new money from its lenders was partly dependent on completion of that process.
