SPORTS Direct tycoon Mike Ashley has placed a £64 million bet on Debenhams shares which could see him emerge with a stake of nearly 7 per cent in the retailer if its market value falls.
Under a complex deal which raised eyebrows among analysts, Sports Direct sold the 4.6 per cent stake it had only disclosed on Monday, making a profit of more than £4m.
But maverick entrepreneur Ashley yesterday revealed he had instead now taken a “put option” on a 6.6 per cent stake in a deal with an unnamed financial institution.
Sport Direct stressed its intention to be a “supportive shareholder” to Debenhams but the move was also seen as increasing pressure on the store chain’s board to enter talks with Ashley about the two companies working together.
Independent retail expert Nick Bubb described it as a “baffling shuffle” of Ashley’s holding but added “presumably he thinks this will give him more leverage in his negotiations with the beleaguered business”.
Mike van Dulken, head of research at Accendo Markets, said the “knee-jerk assumption of many was that billionaire Ashley had made an about-turn on his investment in the company and gone bearish”.
But he said the structure of the option deal implied Ashley still wants exposure to Debenhams and in fact increase it – but only if the share price dips.
“It also implies bad news for Debenhams shareholders in that he sees little upside over the next year.”
Sports Direct’s potential exposure under the deal is up to £64m.
N+1 Singer analyst Matthew McEachran thought Ashley hadn’t backed away from his view that Debenhams’ shares were too cheap.
“With this option Ashley still believes he can force his way into discussions with the management team,” he added.
Sports Direct had bought into the company with a £46m investment in the wake of the department store’s recent profits warning after disappointing Christmas trading.
It said at the time that the move would allow the companies to consider ways to work together.
The group stressed yesterday that it still wants to “explore options” over how the two can work together and is “looking forward to meeting with Debenhams’ senior management team in the near future”.
Ashley, who founded Sports Direct and still owns 62 per cent of the group, reportedly wants to introduce ranges endorsed by the likes of Sports Direct brand ambassadors James Cracknell and is also keen to bring his brands such as Dunlop, Everlast, Kangol and Slazenger to Debenhams.
Under the option deal, Sports Direct is paid a fee for agreeing to buy shares at a pre-set price in the future. If Debenhams shares rise above that undisclosed strike price, Sports Direct will be able to profit from the difference if the counterparty decides to sell, though it will be left with only the original fee if the counterparty does not sell.
If the share price falls, Sports Direct will have to buy the stake at the agreed price, or pay the cash difference between the share price and the strike price.
Shares in Debenhams closed down 1.3p at 81.9p while Sports Direct fell 16p to 721p.