Mike Ashley’s Sports Direct International PLC (LON:SPD) has said it does not intend to make an offer to buy Debenhams PLC (LON:DEB) after the troubled department store chain on Tuesday appointed administrators.
Sports Direct, which owns 29% in Debenhams, was considering a 5p per share cash bid for the retailer and had until April 22 to make a firm offer. However, the FTSE 250-listed retailer has decided against a takeover bid after Debenhams said it has appointed FTI Consulting as its administrators.
The administrators have sold the group to a newly-incorporated company controlled by Debenhams' lenders, including hedge funds understood to include Alcentra, Angelo Gordon and Silver Point Capital. That means shareholders, including Sports Direct, will be wiped out.
In a statement following the termination of its bid interest, Sports Direct said that “it will not stop in its quest to get to the bottom of this appallingly managed process and to find and hold to account those responsible for this final turn of events. This is a tragedy. There is no other way of putting it, especially when a long-term solution was there for the taking.”
Mike Ashley commented, "As normal, politicians and regulators fiddled whilst Rome burnt. These politicians and regulators have proven to be as effective as a chocolate teapot. I restate my call for the advisors to go to prison given their skulduggery in undermining shareholders and other stakeholders, such as employees and pensioners.”
Shares suspended at 1.83p.
Debenhams shares were suspended on Tuesday morning when the company said it would push ahead with a debt refinancing.
Debenhams agreed a deal to secure £200mln in funding from lenders in March but only half was available at that point. The rest of that money was to be released depending on whether Sports Direct launched a firm takeover offer or agreed on the provision of at least £200mln in new funds via a loan or participation in a rights issue.
Sports Direct had offered to underwrite a £150mln rights issue at the weekend, which Debenhams rejected on Monday. The sportswear retailer then raised its lifeline to £200mln on Tuesday morning on the condition that Debenhams' lenders write off £82mln of the retailer's £720mln debt pile.
However, the lenders said the offer was "not sufficient to justify" extending the April 8 deadline to prevent a pre-pack administration from going ahead. Sports Direct had made both offers on the condition that Ashley became chief executive of Debenhams.
Debenhams insisted that stores will continue to trade as normal. It said it would continue to implement the restructuring of its operations, including 50 store closures in the next couple of years, to improve trading performance and deleverage the business.
Laith Khalaf, senior analyst, Hargreaves Lansdown: “It’s game over for Mike Ashley and Debenhams shareholders. The writing’s been on the wall for some time now, and while Sports Direct persisted with attempts to rescue the retailer, its terms proved unacceptable to Debenhams and its lenders.”
He added: “We can still expect Debenhams to continue trading, though store closures are inevitable as Debenhams cuts its cloth to fit today’s increasingly digital retail environment. Lenders take control of the company for the time being, and a sale process is underway.
“It’s therefore possible Mike Ashley could yet play some role in the future of Debenhams, but he would likely need to pay off large chunks of the retailer’s debt in order to take control, and that’s a hefty price tag to stump up for a company that’s struggling to make ends meet.”
Debenhams in numbers:
• Debenhams floated on the stock market on 9 May 2006 at a price of 195p per share, valuing the company at £1.7bn. Its share price peaked at 207p one day later, on 10 May 2006.
• When it floated in 2006, Debenhams had 120 stores in the UK and planned to expand to 240 stores, it now has 165.
• Debenhams stores have an average lease term of 18 years, and the department store currently has £4.3bn of minimum lease payments over the next 20 plus years under current arrangements.
• Profit before tax peaked in 2011 at £160.3mln. Last year Debenhams posted a pre-tax loss of £491.5mln, but revenues were actually higher than in 2011.
• Gross margins were 19.4% in 2006 compared to 10.2% today.
• Three years ago, Debenhams had a market cap of £900mln compared to £20mln today; that means on average £1mln of shareholder value has been lost every trading day over that period.
-- Adds comment from further Sports Direct statement --