Debenhams rejects Mike Ashley and falls into hands of lenders

Debenhams has fallen into the hands of its lenders after rejecting another rescue offer from Mike Ashley.

The Debenhams board said in a statement today that the offers from Mike Ashley’s Sports Direct were “highly conditional” and unacceptable given conditionality, timing, and other obligations.

As a result, control of Debenhams has fallen to its lenders in a pre-pack transaction, and as such business operations will continue. Its lenders include Barclays, Bank of Ireland, Silver Point and GoldenTree. The lenders will aim to sell Debenhams as soon as possible, and Debenham’s stores will continue to trade in the meantime.

Shareholders will lose the value of their investments. Mike Ashley, who has been grappling for control of the company and who owns a 29% stake in Debenhams, stands to lose £150m of built up investment.

Debenhams issued three profit warnings last year and has a debt of £622m. In 2018, the retailer recorded a pre-tax loss of £491.5m, which it partially attributed to poor sales over the Christmas period. Sports Direct issued a £150m cash offer on the 8th April, which was increased to £200m on the 9th.

Debenhams rejected both offers due to the attached condition that Mike Ashley become chief executive.

Commenting on Debenham’s fall to lenders, Terry Duddy, Debenhams’ Chairman, said: “It is disappointing to reach a conclusion that will result in no value for our equity holders. However, this Transaction will allow Debenhams to continue trading as normal, access the funding we need, and proceed with executing our turnaround plans, whilst deleveraging the Group’s balance sheet. We remain focused on protecting as many stores and jobs as possible, consistent with establishing a sustainable store portfolio in line with our previous guidance.

“In the meantime, our customers, colleagues, pension holders, suppliers and landlords can be reassured that Debenhams will now be able to move forward on a stable footing. I would like to thank them all for their recent and continuing support.”

Laith Khalaf, Senior Analyst at Hargreaves Lansdown, said: “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.

“Debenhams has been one of the most shorted shares on the UK stock market for some time, and the hedge funds who bet against it have now recorded a maximum win, the shares cannot fall any further.

“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.

“In theory it’s conceivable there could be some residual value for shareholders as part of this process, but it’s extremely unlikely.”

George Charles from money-saving website www.MoneySavingHeroes.co.uk, commented: “The high street today has taken a massive hit in Debenhams going into administration. It is still a favourite among the consumers that do take to the high street, whether regularly or occasionally, and is going to be one of the biggest hits the high street has seen so far. Stores will remain open for the foreseeable future, but as it’s now in the hands of the lenders, it’s only a matter of time before stores begin to close, changes are made to decrease the debt and consumers feel the brunt of this.

“In this day and age where smaller, more affordable brands are coming through, embracing digital and moving with the trends consumers are being faced with, Debenhams simply haven’t been able to keep up – something that’s affected them strongly. With all of the bad news surrounding Debenhams, it is hard to see how the current situation can be reversed.

“As with Brexit, it’s the uncertainty that makes people most nervous, but sadly we’ve seen this with many other brands in the past few months and, if what’s happened to other brands is to be expected, Debenhams are in for a tough ride.”