Debenhams snubs £200m Sports Direct offer as it prepares for administration

Debenhams in Market Street, Manchester

Sports Direct upped its bid to save department store Debenhams from slipping into administration today.

The firm, which is owned by Mike Ashley, increased its offer to underwrite a rights issue to £200m – £50m more than the amount the Debenhams board turned down yesterday.

But it is looking increasingly likely that Debenhams will slip into administrations today.

Shortly after 8am shares in the firm were suspended ahead of a further announcement.

A pre-pack administration deal is expected to be announced  that would affect Debenhams’ holding company only.

The deal would mean its 165 stores would continue to trade as normal in the short term.

But shareholders’ stakes will be worthless, including Sports Direct’s near 30% stake which is worth £150m.

Mike Ashley

The retailer’s banks and bondholders also want Debenhams to close about 50 stores through a company voluntary arrangement within a matter of weeks.

Debenhams is the latest of a series of big names on the High Street to be hit by the downturn in spending.

House of Fraser was snapped up by Mike Ashley when it went into administration.

Landlords will hold a vote on whether to approve the deal, expected to involve stores closing after Christmas and putting thousands of jobs at risk.

Debenhams has branches in Manchester, Liverpool, Stockport and Warrington.

The deal, which Sports Direct says would form part of a “comprehensive” refinancing of Debenhams, is 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.

A statement from Sports Direct said: “Sports Direct has informed the board of Debenhams that Sports Direct is available to discuss this at any time.

“Sports Direct also called upon the board of Debenhams to engage with Sports Direct to find a solvent solution for Debenhams which is in the best interests of all of Debenhams stakeholders.”

Sports Direct owner Mike 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, Debenhams has again snubbed the fresh offer, as it prepares for administration.

In a statement this morning  the beleaguered department store said: “The company is in discussions with its lenders regarding the availability of the remaining facilities that have not yet been drawn down. 

“As announced on 29 March, and as a result of the milestones relating to a potential transaction with Sports Direct not having been met, it is likely that these facilities will now only be available to the group’s subsidiaries upon transfer of those subsidiaries into the ownership of a lender-approved entity.

“This outcome would ensure the stability and continuing trading of the group’s operating subsidiaries, with no disruption to the group’s business, customers, employees, pension holders, suppliers or operations. This outcome would result in no equity value for the company’s current shareholders.

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.

The company anticipates making a further announcement during the course of the day following further discussions with its lenders.”

Meanwhile, broker Russ Mould likened Mr Ashley’s behaviour to that of a “greedy child” today.

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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