Mike Ashley offers struggling retailer £150m lifeline

The saga surrounding Mike Ashley and Debenhams has taken another twist after the Sports Direct tycoon wrote to the struggling department store offering to underwrite a £150m rights issue to save it from being sold out of administration.

Ashley is desperate to preserve the value of his near 30% share in Debenhams, which would be wiped out if it was sold in a pre-pack deal.

However, the £150m lifeline comes with the condition that Ashley will be installed as the new Debenhams chief executive.

He also wants Debenhams shareholders to agree to a debt-for-equity swap that would bring the department store’s debt mountain down to approximately £300m.

Meanwhile, Sky News reports that Debenhams has responded to the offer by Sports Direct, telling to end his attempted takeover, and comply with the following four conditions, saying that Ashley should:

:: withdraw his request for an extraordinary general meeting aimed at ousting every board member apart from its finance director
:: enter into a stabilisation agreement which would require him to refrain from public statements that could damage the company
:: agree a press release with Debenhams and its lenders that would be issued jointly on Monday
:: provide a legal guarantee that the £150m he is pledging would be provided if Debenhams agrees to his request to become its chief executive.

Ashley has until today to come up with an offer for Debenhams, or it is likely to be placed into administration tomorrow (9 April).

The news comes after the Debenhams board snubbed a £61m takeover approach from Ashley in March and ploughed ahead with a £150m refinancing deal.

Russ Mould, investment director at Manchester investment company AJ Bell, said: “Mike Ashley could face a tricky decision very soon if the Debenhams board continue to ignore his rescue bid.

“You might think the retail kingpin holds all the cards in his battle to secure control of the department store chain given its precarious financial position and the fact he owns nearly 30% of the business.

“However, the colourful language Ashley used at the weekend over lie detector tests for Debenhams executives and the fact he has proposed two alternatives, either taking over the company for 5p per share or underwriting a big share placing, is an indication of the time pressure he is under.

“The refinancing plan agreed with its lenders effectively has a deadline of close of play today. It looks like Ashley faces the unpleasant choice of backing down on demands such as being made chief executive of the group and ousting the current board, or letting the lenders take charge and being wiped out entirely.

“Ashley’s no-nonsense approach to business has likely been a significant factor in the creation of his retail empire. But Debenhams might have been a case where a more softly-softly approach would have yielded greater success.”