Sports Direct mulls full cash bid for Debenhams after earlier rebuff

By

Sandra Halliday

Published
Mar 25, 2019

The war of words between Sports Direct and Debenhams heated up on Monday with Sports Direct delivering strong criticism of the department store's board in the morning then later in the day coming back with a surprise announcement that it could make a full bid for the company.

In an early evening statement, it said: “Sports Direct notes the announcement made by Debenhams on 22 March regarding [its] current restructuring and refinancing process. In Sports Direct's opinion, Debenhams' restructuring and refinancing process is likely to result in an adverse outcome for existing shareholders and, accordingly, Sports Direct confirms that, alongside other options, it is considering a possible offer for the entire issued and to be issued share capital of Debenhams not already held by Sports Direct. The possible offer is likely to be solely in cash although Sports Direct reserves the right to vary the form and/or mix of any consideration offered.”

The company said it “believes that any possible offer would be compelling for Debenhams shareholders as it would allow [those] who wish to realise their shareholdings the opportunity to do so." Other advantages, it said, are that "Sports Direct would seek to run the Debenhams business for the benefit of all of Debenhams’ stakeholders rather than for the benefit of Debenhams’ existing lenders," and the department store chain's current restructuring and refinancing process could result in "no equity value for Debenhams' current shareholders.”

If the company were to make an offer, it would have to do so by end-of-play on April 22, or walk away.

That statement came after the company had earlier defended its rebuffed offer to buy the department store chain’s Danish Magasin du Nord operation and criticised the general attitude of the Debenhams board.

Sports Direct had said it believes its Magasin du Nord proposal represented "in excess of fair value and addresses Debenhams' immediate liquidity concerns.” It added that it had received no response to “its invitation to Debenhams to provide further details of its valuation should Debenhams believe Magasin to be worth more than the £100 million offered.” 

And it also said “the offer for Magasin is one of several offers that Sports Direct has made to provide the board with a valid alternative to its apparent view that multiple insolvency processes are required to address Debenhams' current liquidity concerns and to facilitate a wider balance sheet restructuring.”

Some have cited the clear lack of a recovery at House of Fraser since Mike Ashley-led Sports Direct acquired it last year as a good reason for Debenhams resisting his advances. But on the opposite side, with Debenhams' own recovery stalling and the company apparently planning to launch a refinancing plan that could see shareholders losing 100% of their investments in the chain, Ashley’s lack of enthusiasm for its strategy is understandable.

On the issue of HoF and its competitive position with Debenhams, the release on Monday morning had also said that “Sports Direct does not consider House of Fraser to be a competitor of Debenhams,” although it gave no explanation of a statement that many in the retail sector would disagree with. And it said: “Were Mr Ashley to become CEO of Debenhams he would, as previously announced, step down from his roles at Sports Direct. He would also be subject to fiduciary duties to Debenhams.”