House of Fraser sale: this is Mike Ashley's dream scenario

Over the weekend the Sports Direct founder bought Sir Tom Hunter's 11% stake in the department store. It's a win-win situation.

by Emma Haslett
Last Updated: 02 Jul 2014

It turns out MT wasn’t the only one who thought buying House of Fraser wasn’t going to be as easy as it looked for Chinese company Sanpower: Sir Tom Hunter thought so too, and decided over the weekend to sell his 11% stake to Sports Direct founder Mike Ashley instead.

Apparently Sir Tom took one look at the long list of conditions attached to Sanpower’s offer – which include approval from the Chinese government – and decided to get out, fast.

‘Sports Direct offered us the certainty of cash today, and we balanced that up against what we considered was a highly conditional offer from the Chinese,’ he told the FT.

There’s only one problem: House of Fraser reckons the deal between Ashley and Hunter was against the rules. Apparently, Sir Tom should have offered his stake to the company’s other shareholders (who include Karen Millen co-founder Keith Stanford) first.

‘We have sent legal letters to both parties, reminding them of the proper procedures to transfer shares, which have not been followed,’ said a spokesperson rather pointedly.

But Sir Tom maintains his innocence. Other shareholders have vouched for him, saying he did, in fact, offer them his shares – and the man himself says he is ‘entirely comfortable with our position’.

For Ashley, though, this is a dream scenario (legal wrangles notwithstanding). He’s already bid for the company, but to no avail. Now he has a slice, he has two options: if the deal goes through, he can sell his newly-acquired shares to Sanpower, probably at a smallish margin (neither Sir Tom nor Ashley has disclosed how much money changed hands, but knowing Ashley it was slightly less than Sanpower would have paid).

But if it doesn’t work out, he is now in a perfect position to offer disappointed investors who had been awaiting a payday his consolation – and a bit of cash for their share. Lovely.

So the fact that House of Fraser’s articles of association include ‘drag and tag’ provisions which will eventually force Ashley to sell his 11% to the Chinese is neither here nor there. Either way, Ashley wins.

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