Ashley loses millions in deal
Debenhams in administration but stores get reprieve
Debenhams is expected to close stores
Debenhams has entered into pre-pack administration as predicted in a move that will keep the shops trading but wipes out millions of pounds of shareholders’ funds, including the value of Mike Ashley’s near-30% stake.
The administrators have sold the company to its lenders through a newly-created entity called Celine UK Newco 1.
In a statement the administrators said: “The Group has been sold for a price which in our opinion is the best price reasonably obtainable at the time of sale. However, the transaction included provisions to ensure that the group is immediately marketed for onward sale.”
This potentially opened a new opportunity for Mr Ashley to bid for the group. He described the decision to put it into administration and sell it to its lenders as a “national scandal”.
Debenhams’ “operating companies” are unaffected and all businesses will trade as normal. The business will have access to £200 million of additional funding in line with an announcement on 29 March.
Shares in Debenhams were suspended at 8am on Tuesday after the latest moves in the struggle for control of the business.
Sports Direct, majority owned by Mike Ashley, lodged a new bid this morning to refinance the struggling department store chain – but was again knocked back by its board.
The leisurewear company offered revised terms to Debenhams in the early hours under which Sports Direct would underwrite a £200 million pre-emptive equity issuance to existing Debenhams shareholders
But Debenhams issued a statement rejecting the move. It said it had received the “revised, highly-conditional, proposal from SDI in the early hours of 9 April, which indicated a willingness of Sports Direct to underwrite an equity issue of £200 million. The company’s lenders have confirmed to the company that the proposal, on the terms set out, was not sufficient to justify an extension to the 8 April deadline.”
An administration plan was drawn up by FTI and structured in such a way that it will affect Debenhams PLC but not the trading company. It wipes out the stakes held by Mr Ashley, pictured, and the other shareholders while allowing the business to continue trading. At one stage, Mr Ashley’s stake was worth £150m.
Under the plan Debenhams will be de-listed from the stock exchange and immediately reborn as a private company, owned by its lenders, including US hedge fund Silver Point Capital and GoldenTree Asset Management which last year bought Johnston Press, owner of The Scotsman newspaper. They have agreed to swap at least part of £560m of debt that they are owed, for equity.
For now, the 165 Debenhams department stores will trade as normal. Staff, suppliers, pensioners will be unaffected, but up to 50 stores are likely to close.
Sports Direct said on Monday that it wanted “to constructively engage” with the Debenhams board and was looking at two options to restructure the company.
It had proposed underwriting a £150 million share issue to existing Debenhams shareholders as part of a comprehensive refinancing of the company.
That was on condition that Mr Ashley was appointed Debenhams’ CEO and Debenhams’ lenders agreed to write-off £148m of debt.
Sports Direct was also considering an offer for Debenhams at 5p in cash per ordinary share which it announced on 25 March.
Russ Mould, investment director at AJ Bell, said: “Ashley’s no-nonsense approach to business has likely been a significant factor in the creation of his retail empire. But Debenhams might have been a case where a more softly-softly approach would have yielded greater success”
Debenhams in numbers
- Profit before tax peaked in 2011 at £160.3m; last year it posted a pre-tax loss of £491.5m, even though revenues were higher than in 2011.
- It has 165 stores
- Gross margins were 19.4% in 2006 compared to 10.2% today.
- The company floated on the stock market in 2006 valued at £1.7bn. It is now worth just £20m.
More high street pressure
Total retail sales fell by 0.5% in March, against an increase of 2.3% in March last year as problems continued to pile up for the high street.
The 2-year average growth was 0.9% per annum, a slowdown from February’s equivalent of 1.1%, which takes into account the earlier Easter holidays in March last year.
Helen Dickinson, chief executive of the British Retail Consortium, said: “Retail sales slowed in March, even when the Easter distortions were accounted for, as greater uncertainty caused people to hold off from splashing out. While jewellery, beauty products and clothing purchases were all up to indulge on Mother’s Day, shoppers were generally cautious not to overspend, particularly on larger items.
“Brexit continues to feed the uncertainty among consumers. For the sake of everyone, MPs must rally behind a plan of action that avoids no deal – and quickly – or it will be ordinary families who suffer as a result of higher prices and less choice on the shelves.”