News on Monday that Sports Direct International PLC (LON:SPD) had withdrawn a bid for distressed bakery chain Patisserie Valerie, after having issued a one-sentence announcement of the bid the previous Friday, added another plank to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.
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.
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.