Debenhams resists last-chance saloon

Mike Ashley’s Debenhams endgame could get messy

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

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