Sports Direct (LSE:SPD) confirmed it is considering making a firm offer of 5p per share for Debenhams (LSE:DEB) in an announcement on Wednesday. The offer values the total share capital of the company at £61.4m and triggered a 100pc rise in the stock price in early trading.
Sports Direct, who already owns almost 30pc of Debenhams, said it would ‘assist Debenhams in addressing its immediate funding requirements’ subject to a number of pre-conditions. These include the immediate appointment of Mike Ashley as chief executive officer (CEO) and the termination of the noteholder consent solicitation process Debenhams announced on 22 March 2019. The struggling retailer is seeking permission from senior notes holders to arrange up to £200m of new loan facilities, but Sports Direct has stipulated the group must not enter into any new third-party funding arrangements.
Sports Direct had offered a £150m loan to Debenhams along with a demand for a general meeting and the instalment of Mike Ashley as the company’s CEO. The firm bought all of the UK’s House of Fraser stores last year for £90m. The department store chain went into administration after talks with its creditors failed to reach an agreement.
Mike Ashley has stated if appointed to the board of Debenhams he would step down from his current role as chief Executive of Sports Direct in order to focus on ‘building a strong board and management team’. He would be replaced by Chris Wootton who is currently Sports Direct’s deputy chief financial officer.
The share price of Debenhams had sunk as low as 1p with the threat of a potential wipe out in value for equity holders looming.
While the current share price of 3.3p may look attractive in light of the 5p per share offer, potential investors should be mindful that Sports Direct is yet to make a firm offer and may in fact subsequently reduce its value or withdrawal it altogether.