Debenhams warns restructuring may wipe out shareholders

Marco Green
March 25, 2019

Last week, Sports Direct offered Debenhams a 150 million pound loan and on Friday said it had offered to buy Debenhams' Danish business Magasin Du Nord for 100 million pounds.

"Sports Direct would like the matter of Debenhams board appointments to be put to the vote of the Debenhams shareholders as soon as possible", the company said.

Debenhams is reportedly on the verge of securing a £200 million cash injection as a way to save the business and stave off a takeover campaign led by Mike Ashley and Sports Direct.

'However, certain of these options - if they materialise - would result in no equity value for the company's current shareholders'.

Analysts suggest management will try to secure a company voluntary arrangement that could involve the closure of 20 to 50 stores, with rent reductions across its 166-store estate, while other reports suggest a pre-pack administration is the preferred option of lenders. If these conditions were met, Sports Direct said the loan would be "guaranteed to be interest-free".

"Magasin is a key part of the Debenhams group, is cash flow generative and a meaningful contributor to group profits", Debenhams added. However in return, Sports Direct wants Ashley installed as CEO of Debenhams to help it through the restructuring process.

"The board has remained open to engagement with Sports Direct throughout its refinancing process and has provided clear guidance on what would represent workable solutions", Debenhams said in a statement.

However, that came with a catch that Ashley would become chief executive and Sports Direct would acquire another five per cent stake in the retailer.

He added: "Mike Ashley's attempt to create a "House of Debenhams" looks doomed to be an expensive failure after Debenhams revealed its restructuring plans".

It is the latest development in a tug of war over the beleaguered department store between its lenders and Sports Direct, controlled by billionaire Mr Ashley, which already holds 30% of the business. Cheshire subsequently resigned. The same coup also saw Sergio Bucher ousted from the boardroom, but he was permitted to continue carrying out his duties as Debenhams chief executive.

Debenhams said the move would "provide liquidity headroom" and "deliver stability" for customers and staff.

Ashley's attempt to take charge of Debenhams is also complicated by the terms of some of its loans and bonds, which would enable creditors to call in their debts in the event of a change of control.

Other reports by Click Lancashire

Discuss This Article