Ka-ching: Sports Direct Buys Surprise Debenhams Stake

Mike Ashley's company has bought shares in struggling Debenhams, then said it wants to 'explore options' together.

by Rachel Savage
Last Updated: 16 Jan 2014

Sports Direct, the retailer majority-owned by maverick Newcastle United owner Mike Ashley, has bought a 4.63% stake in Debenhams, two weeks after the beleaguered department store issued a profit warning.
 
Sports Direct said it bought the 56.8 million shares, worth £46.3m at the end of Friday trading, 'without the prior knowledge of the Debenhams board of directors', but that it had told them of 'its desire to work together and its intention to be a supportive shareholder'. How friendly.
 
Two weeks ago, Debenhams share prices plunged after the retailer admitted to nightmare Christmas trading and warned pre-tax profits for the six months to April this year will be around £85m, almost 25% lower than previously forecast. Two days later finance director Simon Herrick fell on his sword and resigned.
 
Sports Direct, on the other hand, had a rather more victorious year than Debenhams. The UK’s largest sporting goods seller marched into the FTSE 100 in September, and its shares have risen 85% in the last 12 months.
 
The retailer said it 'wishes to explore options at an operational level to work together with Debenhams'. The department store, in its own statement, said it is 'open minded' about 'exploring operational opportunities to improve its performance'. Sounds like there's going to be lots of mutual exploration going on. Ooo-err...
 
With rubbish Christmas sales – revenues crept up just 0.1% on a like-for-like basis in the 17 weeks to December 28 – you’d hope Debenhams was open to new ideas. What’s not clear is what Sports Direct is planning. Discount rummage bins in womenswear?
 
The markets seem a tad confused by Sports Direct’s share grab. The company’s shares were down 1.3% to 746p, while Debenhams was up 5.1% to 86p in mid-morning trading. It's worth pointing out Debenhams plummeted 12% to 73p when it slashed its profit forecast two weeks ago, but had recovered most of the ground before today.
 
Sports Direct reported a bumper first half of 2013 in December, with a 17% rise in pre-tax profit driven by a 43% surge in online sales. The company said it was considering buying stakes in an Austrian and a Baltic retailer to up its international presence from 19 European countries. Back in the UK, it snapped up HMV’s flagship Oxford Street store, which closed yesterday – that’s another 60,000 square feet of jumble sale-style shopping, then...
 
Meanwhile, no-nonsense billionaire founder and executive deputy chairman Ashley sold 2.7% of the company back in October, taking his share of the business down to 61.7% and causing raised eyebrows among investors. Ashley, whose sponsorship deal with pay-day loans company Wonga and subsequent lack of new player signings enraged Newcastle fans so much that they staged a protest march against him in October last year, also sold off 4.2% of Sports Direct in February.
 
With the World Cup this summer, 2014 is already set to be a trophy year for Sports Direct. The retailer is thinking even bigger by buying up Debenhams, though. Chief exec David Forsey made lots of admiring noises about Next in a recent Telegraph interview, and the clothes store was one of the high street winners this Christmas – unlike Debenhams. Perhaps he has ambitions to take on Simon Wolfson head to head with Debenhams...

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