Proactive Investors - Run By Investors For Investors

Is Mike Ashley’s bidding spree driving away future Sports Direct investors?

Following news of a withdrawn bid to acquire Patisserie Valerie on Monday, the chief exec's seemingly opportunistic approach to Britain's struggling high street, and a lack of a coherent strategy, has some analysts speculating that he could be putting future investments at risk
Sports Direct website
A "black hole of information” around its strategy could be putting investors off Sports Direct when they decide where to put their cash

News on Monday that Sports Direct International PLC (LON:SPD) had withdrawn a bid for distressed bakery chain Patisserie Valerie, after having issued a one-sentence announcement of the bid the previous Friday, added another plank to the seemingly opportunistic bout of takeover attempts by its chief executive Mike Ashley.

READ: Sports Direct made an offer for collapsed cake chain Patisserie Valerie, but then withdrew it

The random nature of the bids, coupled with a lack of a clear corporate strategy, have some speculating that Ashley’s gung-ho approach could be putting future investments at risk.

Information "black hole” driving away future investors?

Laith Khalaf, senior analyst at Hargreaves Lansdown, told Proactive that the lack of clarity made it difficult for the market to be certain about what exactly Ashley’s end goal is.

“Markets shouldn’t be second-guessing corporate strategy,” Khalaf says, adding that the method of picking up troubled firms isn’t entirely consistent with Sport Direct’s stake in companies such as Debenhams PLC (LON:DEB), which were not acquired in times of stress.

For potential investors, however, Khalaf says that the haphazard bidding approach accompanied by “a black hole of information”, could be off-putting when they decide where to put their cash.

Given that Sports Direct’s shares have lost around 24% of their value in the last 12 months, that additional capital could be needed if the acquisition strategy doesn’t pay off.

But could there be a method to it all?

An analyst at a mid-tier investment bank, who asked not to be named, said that a potential strategy could be to dispose of the existing store estate from the various acquired companies and bring the brand (and their customer reach) onto the shelves of the department stores.

“He could potentially gain some synergies while still having access to the brand and therefore access to the customer demographics ... You’re paying one lot of rent for customer footfall if you have a whole host of brands under one roof”.

With this in mind, the companies Ashley has been going after in recent months seem to make a little more sense.

READ: Canadian retailer Sunrise Records fends off competition from Mike Ashley to rescue HMV

Music, electronics, and media retailer HMV would have added a nice brand to the technology section of a department store until Ashley lost a bidding war to Canadian retailer Sunrise Records earlier in February while picking up Patisserie would’ve provided confectionary.

A report from Sky News in December also said that Ashley was mulling a takeover of iconic toy retailer Hamley’s.

Taken together, the idea of a food, clothing, toy, and technology retailer does begin to give off vibes akin to Ashley’s boast to create “the Harrods of the high street” when he picked up department store chain House of Fraser last summer.

While attempting to offload such a large amount of store estate from the acquired companies was a “risk”, the analyst said that it was “the only way” to make sense of it, given the lack of strategic clarity from the company.

Sports Direct could not be reached for comment.

--Amends headline--

View full SPD profile View Profile

Sports Direct Timeline

Related Articles

Scans and MRI
November 28 2018
The firm's subsidiary, Imaging Biometrics, recently appointed a South Korean distributor a few weeks after receiving the first commercial order for its StoneChecker technology
H&T
December 03 2018
“I think customers are seeing that we do offer value and that really is the answer,” said chief executive John Nichols
Drain
December 18 2018
MetroRod has been in operation for 30 years but only became a franchise relatively recently

© Proactive Investors 2019

Proactive Investors Limited, trading as “Proactiveinvestors United Kingdom”, is Authorised and regulated by the Financial Conduct Authority.
Registered in England with Company Registration number 05639690. Group VAT registration number 872070825 FCA Registration number 559082. You can contact us here.

Market Indices, Commodities and Regulatory News Headlines copyright © Morningstar. Data delayed 15 minutes unless otherwise indicated. Terms of use