Retail billionaire Mike Ashley has made his latest move to take control of floundering department store chain Debenhams PLC (LON:DEB).
The 54-year-old’s Sports Direct International PLC (LON:SPD), which holds almost 30% of Debenhams shares, has requisitioned a general meeting, where it will call for the removal of all Debenhams’ board except for chief financial officer, Rachel Osborne, who joined last September.
READ: Debenhams sinks after latest profit warning
The FTSE 100 group will also ask Debenhams’ shareholders to appoint Ashley to an “executive role” from which he would look to build a “strong board and management team”.
Should investors back the proposals, Sports Direct has said its founder would step down from his current role as its chief executive in order to focus on Debenhams during this “business critical period” for the company.
In the event Ashley does take the reins at Debenhams, Sports Direct’s deputy finance boss, Chris Wooton, would replace him as the discount sportswear retailer’s chief executive.
Debenhams shares surge
Debenhams, which issued its latest profit warning earlier this week, said on Friday morning it was “disappointed” that Sports Direct has taken such action.
It added that it is looking at its options with regards to strengthening its balance sheet, while discussions with lenders over future financing are “well advanced”.
Despite management's disappointment, Debenhams investors reacted positively to the possibility of Ashley taking control of their company.
The stock jumped almost 20% in early deals to 3.6p.
Sports Direct shareholders weren't so enthused at the prospect of losing their main man as the shares slipped 1.1% to 260p.
Not Ashley’s first attempt at a power grab
It is not the first time Ashley has made a grab for power at Debenhams. He was instrumental in getting chairman Ian Cheshire and chief executive Sergio Bucher kicked off the board back in January.
Shortly before, it had emerged that Debenhams, which has been one of the worst hit by the UK high street malaise, had turned down a £40mln loan offer from the Newcastle United owner.
In a letter addressed to CEO Bucher, Ashley vented his frustration that the company did not want his help, suggesting the retailer "has zero chance of survival" without the money.
He has previously spoken of his desire to take control of Debenhams, having rescued rival department store owner House of Fraser last summer.
Investors to take a punt?
No date has been set for the meeting yet, but shareholders could be forgiven for taking a chance on a Mike Ashley-led turnaround.
Debenhams’ own improvement strategy, which involves closing 50 stores and axing thousands of jobs, is costing more than expected and was one of the contributing factors to Tuesday’s profit warning.
Investors have also seen the value of their holdings plunge in recent years, with shares falling 85% last year alone.
As recently as 2015, the stock was trading at upwards of 100p, although it now sits just above 3p, valuing Debenhams at just £37.5mln.
‘Ashley will get what he wants’
“One wonders why Ashley does not simply go the obvious route and bid for Debenhams and combine into the House of Fraser rump,” said Markets.com analyst Neil Wilson.
“The rationale for tying these companies together is clearly compelling. If the coup fails, he will surely launch a takeover. If it succeeds, he will be able to tie up the operational side and shore up finances from his own resources.”
Wilson concluded: “Whether this boardroom coup fails or not, there is surely only one outcome from all of this: Mike Ashley will get what he wants.”
Peel Hunt analyst John Stevenson said Ashley’s move was a “last-minute attempt” to protect his near-30% stake in Debenhams.
“Equity value in Debenhams, including the c30% stake held by Sports Direct, is in jeopardy of being significantly diluted by any forthcoming fundraise and balance sheet restructuring,” he wrote in a note to clients.
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