Mike Ashley’s Frasers Group In Late Debenhams Rescue Bid

Published On: December 8, 2020Categories: Stocks & Shares2.7 min read

Mike Ashley’s Frasers Group, formerly Sports Direct, has launched a last gasp bid for Debenhams despite last week’s announcement that the retailer will go into liquidation in the new year. The administrators, having failed to find a viable bidder for the high street staple, had sounded its death knell, seemingly sealing the fate of 12,000 employees across 124 stores.

Now Ashley, who has a long-standing interest in Debenhams, especially its more attractive store locations, has come back to the table. His group, as a direct competitor through the Frasers department stores, had previously been denied access to detailed store-by-store profit and loss breakdowns.

Lacking what he believed to be the necessary information on which to base any realistic offer, Frasers Group had previously only submitted a symbolic low-ball bid, which was quickly dismissed. However, at this stage, with Debenhams on the verge of liquidation and no serious rival buyer appearing, it can be presumed the administrators will let Ashley have a more detailed insight into the finances of individual stores.

Frasers Group was previously interested in securing just 30 Debenhams stores. Those which it believed were best suited to conversion into Sports Direct or Flannels, the brand labels discounter acquired by the group in 2017. The interest is now thought to be broader but it is still believed that Ashley will seek to cut any loss-making stores from the portfolio, and look for a deal that excludes them.

Chief Wootton, Frasers Group’s chief financial officer, confirmed over the weekend that negotiations with FRP Advisory, Debenhams’ administrators, had continued on Saturday but that “hurdles still remain and the outlook is uncertain”.

It is believed the next step in negotiations will involve Frasers Group being granted access to a store-by-store profit and loss breakdown across what is the UK’s largest department store chain. Before being taken over by its lenders last year following years of struggling with debt loaded onto it by private equity owners ahead of being listed, Frasers group had bought into Debenhams. Its investment had made it the department store’s biggest shareholder but turned into a £150 million loss for Frasers Group after its stake was wiped out in a debt-for-equity swap.

Debenhams has been in administration since April and for sale for several months. It has been eyed by suitors ranging from JD Sports to Reliance Retail, owned by India’s richest man Mukesh Ambani. However, all previously interested parties withdrew their bids one-by-one leaving liquidation looking like the high street stalwart’s final fate.

Depending on how much stock is left after Debenhams’ ongoing closing down sale, it is believed a Frasers Group bid could value the company at a little over £200 million. If it does materialise it will look as though Mr Ashley has pulled off another canny waiting game to acquire a valuable brand at a cut-price level. He’s had a longstanding ambition to join Debenhams up with House of Fraser, the department store chain his group, formerly Sports Direct, is now named after.He’s played his hand patiently, initially refusing to make an offer that stood a serious chance of being accepted until given access to a detailed store-by-store profit and loss breakdown. That was considered by the administrators, in view of the fact that House of Frasers is a direct competitor to Debenhams, uncompetitive.

It now looks like Ashley will be able to cherry-pick only the Debenhams stores he wants, which Clive Black, a retail analyst at Shore Capital, expects to number 30-40. Retaining the leases on those properties is also expected to be subject to tough rent negotiations with landlords.

About the Author: Jonathan Adams

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