Mike Ashley’s Debenhams endgame could get messy
The Sports Direct owner has finally made his move, yet the most closely watched British retail saga in years is unlikely to be concluded smoothly or even quickly. Just days ago, the 206-year old high street institution launched its latest restructuring attempt. The group seeks £200m more from creditors, warning that some options it may pursue would wipe-out equity holders. Ashley’s Sports Direct owns around 30% of direct Debenhams equity.
Ashley’s reaction was to make a second loan offer within months, of £150m, coupled with an undertaking to buy Debenhams’ Danish business. Like Wednesday’s possible offer, earlier ones were conditional on the billionaire being appointed CEO. Now, Ashley indicates he could offer 5 pence a share, or £61.4m and would address the group’s immediate funding needs.
Given the level of resistance from Debenhams’ board during a public tussle over many months, it looks unlikely to accept Sports Direct’s potential offer. There was no response from Debenhams by the middle of Wednesday trade. The stage is set for a protracted and acrimonious fight for control. The deadline for creditors is Thursday. Takeover rules dictate that Sports Direct must ‘put up or shut up’ by 22nd April.
Despite the shares surging as much as 80% on Wednesday it’s notable they remain below Sports Direct’s indicative price, the classic giveaway of scepticism. Debenhams’ chart suggests late buyers should be wary. 2018’s 4.66p high notched on 10th February hasn’t been touched since. It’s a pivot going back to November. A precursor is 4.26p, resistance from distinct highs in January and March. Below both resistances, even huge surges could be sold.
Price chart: Debenhams CFD 27/03/2019 13:07:14
Source: City Index
GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.