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Ashley Debenhams coup is a 'protection' play

As the power struggle between the board of Debenhams and Mike Ashley reached boiling point this week, industry stakeholders remain unconvinced that the involvement of the Sports Direct tycoon would revive the department store’s fortunes.

Sports Direct, which owns a 29.7% in Debenhams, last week called for an extraordinary general meeting of the department store chain to install Mike Ashley as an executive, and remove all existing board members other than CFO Rachel Osborne.

Debenhams said it had been engaging with Sports Direct and other stakeholders, and was “disappointed” that Sports Direct had taken this action. It added that it is in advanced negotiations to secure a £150m lifeline from its current lenders, which will partly be used to refinance the £40m bridge facility announced on 12 February.

In a letter to suppliers seen by Drapers Debenhams said the requested board meeting is likely to happen in April.

Sources told Drapers Ashley is interested in protecting his own position rather than transforming the ailing business, which looks increasingly likely to be heading towards a restructuring through a company voluntary arrangement (CVA).

“It’s about preserving his own equity stake in the business,” said Peel Hunt retail analyst John Stevenson. “He hasn’t put forward a different view for shareholders of how he intends to deliver a differentiated or customer-relevant department store. He fears a significant level of equity dilution, and is stepping in to protect that stake.

One brand source agreed: “I’m not sure what Mike Ashley is going to add to Debenhams from a brand’s perspective. It is a move to protect his own position and prevent him from being diluted in a share-for-debt swap.”

Others expressed concern about the future of Debenhams.

“There is a big sense of hesitation on the brand side,” said one menswear source. “Everyone is waiting to see what’s going to happen with the credit line. Mike Ashley wants to protect his position, and consolidate House of Fraser and Debenhams, but he doesn’t know how to run a department store. From a brand perspective, if Debenhams and House of Fraser, merge Ashley would have a lot of control over brands. If you don’t do a deal with him, who is there left to sell to?”

Another supplier said: “The £40m cash injection made no difference to our insurance cover and I don’t know what impact the £150m will have on us. We, like many other brands, are taking a very cautious approach to working with Debenhams. So many of us got burned by House of Fraser. We are looking for stability.”

As Debenhams inches closer to a CVA, it is expected that the funding will be secured before the looming rent deadline of 25 March, and ahead of the board meeting. 

However, the ongoing power struggle will only make conditions harder to manage at the department store, industry veteran Andrew Jennings warned: “This sort of news does not go down well and will certainly act as a destabiliser. You’ve got to ask: what has Mike Ashley done with House of Fraser? He said he was going to create a Harrods of the high street and as of yet we haven’t seen that.”

Drapers has contacted Sports Direct for comment.

 

 

 

Readers' comments (3)

  • Very interesting how this one will play out.

    Debenhams is finished in its current form, regardless of additional funding. HOF is completely lost, with the consumer no longer knowing what it stands for or where it is going. The 'Harrods of The High Street' claim was at best disingenuous, at worst, an outright lie on current evidence.

    I can understand why Debenhams would not want Ashley to take over the chain because that would be admitting defeat, but they have already lost as they are running out of road with a prehistoric business model and no way back.

    Merging the two in some form, with drastic downsizing of the size and number of those stores is the only throw of the dice available, but that would mean a lot of jobs lost and all the gravy gone from the jug.

    Ultimately can two clapped out retailers be greater than their sum of parts, or just become the retail equivalent of British Leyland?

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  • Simon Cope

    Rome wasn’t rebuilt in a day. He’s got a vision with a new sustainable strategy. Most others are only concerned with e-com. Brick & Motor still have legs but need a drastic rethink. It is easy to criticise others. He’s keep most HOF stores open true to his word.

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  • Rome wasn't built in a day, but neither was Milton Keynes.

    There is no tangible evidence as yet that HoF has moved forward with the jury very much out. Ultimately the balance sheet will tell the story.

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