Lenders seize UK retailer Debenhams, wiping out Ashley
LONDON (Reuters) – Lenders to Debenhams took control of the struggling UK retailer on Tuesday in a process to keep its stores open to the detriment of shareholders, including an angry Mike Ashley, who were wiped out.
Once the largest department store chain in the country, Debenhams had been hit by a sharp slowdown in sales, high rents and inflated debt, as well as a bitter power struggle with billionaire Ashley’s Sports Direct.
The directors were appointed on Tuesday after Ashley’s latest bid to save the company failed. They sold the group to its creditors including British banks and American hedge funds.
Ashley, owner of Premier League Newcastle United, had spent tens of millions of pounds to build up a 30% stake and months trying to take control of the company.
He reacted angrily to the movement. It was “nothing less than a national scandal,” he said, with the Debenhams board “playing its role out of incompetence, or worse, collusion.
“As these hedge funds seek to close a significant number of stores and put thousands of people out of work, under the watch of politicians and regulators, I will go to the ends of the earth to save so many stores and Debenhams jobs as possible, ”he said.
Tuesday’s deal will keep Debenhams’ 166 UK stores in operation for now, FTI Consulting directors said. Suppliers, workers, pensioners and customers will not be affected either.
But they said an existing plan to close 50 underperforming stores and demand rent cuts was “critical” to its survival. Restructuring puts around 4,000 jobs at risk.
Debenhams’ descent into administration is another blow to a retail sector already reeling from the collapse of BHS, HMV music store, electronics firm Maplin, House department store of Fraser and the Evans Cycle Store. The last two were snapped up by Ashley.
“It is disappointing to come to a conclusion that will not provide value to our shareholders,” said Chairman Terry Duddy.
“However, this transaction will allow Debenhams to continue trading normally, to access the financing we need and to proceed with the execution of our recovery plans while deleveraging the group’s balance sheet.”
In business since 1778, Debenhams has been fighting for survival after a shift in online consumption and towards cheaper outlets left him too much retail space on struggling shopping streets, destroying 90% of the value of its shares over the past year.
With a flagship store on Oxford Street in London, the group has been too slow to adapt.
Its stores – among the largest on Britain’s retail map – are burdened with high rents, trade rates and staffing levels, as it has had to make deep discounts to boost sales clothing.
At the time of its collapse, its debt stood at 720 million pounds ($ 940 million) and its market valuation was only 22 million pounds. In 2018, it had 19 million customers and 2.9 billion pounds in sales.
Hargreaves Lansdown analyst Laith Khalaf said the group has been down since going public – for the third time – in 2006.
“We can always expect Debenhams to continue in business, although store closures are inevitable as Debenhams cuts its fabric to fit in today’s increasingly digital retail environment. “, did he declare.
It also has stores in Ireland and owns the Northern Store in Denmark.
The new owners of Debenhams put the chain up for sale, so Ashley could still play a role, but he would likely have to take on a lot of the retail debt, Khalaf said.
Ashley had proposed a bailout, but on condition that he be appointed general manager. As tensions grew between the two sides, Ashley even demanded that members of the Debenhams board take lie detector tests.
A person familiar with the situation told Reuters that Debenhams was concerned that if Ashley became CEO, he would renege on his financial promise and put it in administration himself, allowing him to select only the stores he wanted to own.
Sports Direct said that as a result of the administration, it has no plans to make an offer for the company.
Editing by Keith Weir and John Stonestreet