Face of UK fashion retail set to change as Mike Ashley makes a play for House of Fraser and looks to consolidate position with further acquisitions.
The move is believed to be part of a deal that will result in Ashley becoming a majority shareholder.
McCarthy last week sold his interest in Aurum, the owner of jewellery business Goldsmiths, and sources indicated he was also looking to take a step back from House of Fraser. Ashley, meanwhile, is understood to be looking to widen his retail presence.
“Don wants out,” one source close to the situation said. “HoF has a portfolio with several stores that don’t contribute anything. Don’s view is that Mike can convert the unprofitable stores into Sports Direct and focus on growing the top-performing stores into a premium retail business.”
Another source suggested House of Fraser would offer a higher-end platform for key brands acquired by Ashley.
As well as McCarthy’s 19.4% stake, Ashley is also thought to be in the process of acquiring either one or both of the respective stakes held by BG Holding (35%) and FL Holding (13.9%), divisions of the collapsed Icelandic banks Baugur and Landsbanki.
Other shareholders include TBH Trading, an investment vehicle of retail entrepreneur Sir Tom Hunter, which owns an 11.1% stake. Karen Millen co-founder Kevin Stanford owns 10%, with the remainder split between several smaller shareholders.
The deal is now thought to be in front of these parties. This follows the issue of new articles of association of Highland Group Holdings, the parent company of House of Fraser, which were adopted on November 9 and are believed to make it easier to transfer shares.
Last week, HoF revealed like-for-like sales for the third quarter had risen 5.4%, posting a healthy EBITDA of £3m compared with a loss of £1.3m over the same period last year.
The business also managed to reduce its debt from £280m on October 29, 2011, to £274.8m on October 27, 2012.
Away from House of Fraser, Drapers understands that Sports Direct has held meetings with rival business JD Sports Fashion to discuss potentially swapping certain businesses and brands.
Premium indie mini-chains Flannels and Cruise have been identified as top interests for JD, with Sports Direct eyeing up rugby brand KooGa.
One source said: “The most unusual thing is that the two companies are meeting in the first place, as historically there is such rivalry between the two. But it makes sense because Sports Direct are weak on the rugby side.”
Another industry source added: “[Ashley] has always wanted a rugby brand because it is the one thing he doesn’t have – he has football and cricket, but he doesn’t have rugby.”
Sports Direct is also thought to have won the menswear licence for premium label DKNY – a move that Drapers first revealed was on the cards back in October.
Rumours have also surfaced that Ashley is eyeing menswear chain Burton, although this has been denied by parent company Arcadia.