Mike Ashley’s Sports Direct has quietly snapped up a £45 million stake in struggling department store Debenhams and Ashley has told the retailer’s board that he wants to work closely with them.
Debenhams said it remained open-minded about working with Sports Direct and Ashley as shares jumped 4.4%. Since the start of the year, shares in Debenhams have risen 11.7% as Ashley’s business slowly bought the 4.6% stake, despite a profit warning on New Year’s Eve.
The billionaire businessman eyed up House of Fraser last year, but decided against any approach after the two sides could not agree terms. His interest in the rival has led some to speculate that he may be interested in buying out Debenhams. Others have suggested that Sports Direct could use Debenhams as a platform to sell some of the company’s fashion brand including Republic, USC and Flannels.
Freddy George, retail analyst at Cantor Fitzgerald, suggested: “This would imply to us that the company is potentially considering splitting the fashion assortment from the sports ranges in its stores over the medium term.
“Sports Direct has looked very closely at acquiring House of Fraser over the last year and has in the past been active in buying stakes in other retail companies, not always with great success, including JD Sports, JJB and Blacks, so in our view one should not read too much into this new investment.”
Sports Direct already has an 11.9% stake in JD Sports and held a 22% stake in Blacks before it went into administration, despite Ashley’s best attempts to save the business. The company also had a stake in Umbro and used the leverage of the England team’s kit-maker in negotiations because Sports Direct was one of its biggest customers.
Ashley has been keen to buy up struggling companies with the hope of making a quick return — he bought a stake in Adidas and sold eight weeks later at substantial gain. However, some analysts have suggested this may not be the case with Debenhams.
Analysts at Oriel pointed out that the investment was made through Sports Direct, rather than using Ashley’s own cash.
Oriel added: “The use of the Sport Direct balance sheet suggests that there may be more of a commercial motivation at work.
“The glaring hole in Sports Direct’s online operation is that it doesn’t offer Click and Collect and using Debenhams’ 156-store network to help this may be the plan. Presumably Debs would hope to benefit from the footfall.”
