Debenhams confirms group placed into administration

Debenhams confirms group placed into administration
Up to 50 stores could close as part of restructuring

Retail chain Debenhams has been placed into administration.

The high street giant confirmed today that Chad Griffin, Simon Kirkhope and Andrew Johnson of FTI Consulting LLP have been appointed as joint administrators and the completion of the sale of the group, other than plc, to a newly-incorporated company, controlled by its secured lenders.

Under its new ownership, the group will have available to it significant additional funding in line with the £200m new money facilities announced on March 29, 2019.

The group said it will continue to implement the restructuring of its operations, including optimising the store portfolio, in line with plans already communicated, to improve trading performance and deleverage the business.

Terry Duddy, Debenhams’ chairman, said: “It is disappointing to reach a conclusion that will result in no value for our equity holders.

“However, this transaction will allow Debenhams to continue trading as normal, access the funding we need, and proceed with executing our turnaround plans, whilst deleveraging the group’s balance sheet.

“We remain focused on protecting as many stores and jobs as possible, consistent with establishing a sustainable store portfolio in line with our previous guidance.

“In the meantime, our customers, colleagues, pension holders, suppliers and landlords can be reassured that Debenhams will now be able to move forward on a stable footing. I would like to thank them all for their recent and continuing support.”

Richard Lim, chief executive, Retail Economics said: “We should not understate the significance of this collapse given the vast property portfolio, number of jobs impacted and the reverberations felt across many high streets.

“Debenhams has fallen victim to crippling levels of debt, which has paralysed its ability to pivot towards a more digital and experience-led retail model.

“Put simply, the business has been out manoveured by more nimble competitors, failed to embrace change and was left with a tiring proposition. The industry is evolving fast and it paid the ultimate price.”

The chain earlier this morning rebuffed another approach from suitor Mike Ashley, owner of the Sports Direct and House of Fraser businesses.

Sports Direct increased its offer to underwrite a rights issue to £200m – £50m more than the amount the Debenhams board turned down yesterday (April 8).

Debenhams rejected the revised offer and announced shortly after 8am that shares in the firm were suspended ahead of a further announcement.

Administration would render shareholders’ stock in Debenhams worthless, including Mr Ashley’s near-30% stake which cost around £150m to accumulate.

Today’ deal means its 165 stores would continue to trade as normal in the short term.

Sports Direct said its improved bid would form part of a “comprehensive” refinancing of Debenhams, but was subject to a number of conditions, including the appointment of Mike Ashley as Debenhams’ CEO and Debenhams’ lenders agreeing to write-off £82m of Debenhams’ £720m total debt facilities.

In a statement early this morning, Debenhams said: “The board confirms that it received a revised, highly-conditional, proposal from Sports Direct in the early hours of 9 April, which indicated a willingness of Sports Direct to underwrite an equity issue of £200 million. The company’s lenders have confirmed to the company that the proposal, on the terms set out, was not sufficient to justify an extension to the 8 April deadline.”

This morning broker Russ Mould likened Mr Ashley’s behaviour to that of a “greedy child”.

The investment director at investment platform AJ Bell said: “The situation has been like a greedy child who wants a new toy. As soon as they get it, all they want is another toy, rather than making the most of what they’ve already got.

“Mr Ashley needs to get back to the day job and regain focus.”

He added: “While Mike Ashley seems to like the thrill of the chase, it is time for him to admit defeat with his pursuit of Debenhams and adding another string to the bow of his retail empire.

“Someone needs to tap him on the shoulder and remind him that he’s already got a core business to run and a bit more attention wouldn’t go amiss.

“Sports Direct’s half year results last December saw the retailer report a 26.8% drop in underlying pre-tax profit to £64.4m. And its share price has fallen by a third since last Summer.

“The Debenhams saga has been a significant distraction to Sports Direct’s management at a time when the retail sector remains very fragile.”

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