Tom Hunter in £7m fashion deal with Mike Ashley

SIR Tom Hunter has offloaded a majority stake in his USC and Cruise clothing businesses to fellow retail entrepreneur Mike Ashley for £7 million.

Hunter has sold an 80 per cent stake in the two businesses to the Sports Direct and Newcastle United owner just seven months after buying Cruise out of administration for 5m.

The Scots entrepreneur, who pumped 8.7m into USC last year, will retain a 20 per cent holding and remain chairman of the businesses, which will be operated at arm's length from Sports Direct's core retail operation. Ashley has agreed to bankroll a 20m expansion of the more upmarket brands.

Hunter said the deal would "transform the prospects for both USC and Cruise and our employees at a time of extraordinary turbulence in the high street". He will guide the expansion of Sport Direct's newly-created "premium and luxury lifestyle" division and has been given the green light to go out looking for acquisition opportunities.

Potential plans for the division are believed to include a roll-out of the USC chain - which sells brands such as Diesel, G-Star and Ugg - into the central London market, where it doesn't have a presence.

The tie-up with Ashley marks Hunter's second major retail sale in less than a year after he offloaded the Office chain of shoe shops to a private equity buyer in December for 150m.

But a spokesman for the entrepreneur, who took a significant hit on a number of investments during the recession, including on his exposure to housebuilder Crest Nicholson and the McCarthy & Stone retirement homes, said the Sports Direct deal would see him more actively involved in retail than he has been for a couple of years.

"It a long-term deal for us that strongly supports the growth of the businesses," the spokesman said.

"Operationally, nothing has changed, he will be out looking for opportunities to grow the businesses."

For Sports Direct, the deal gives Ashley a window into the more upmarket end of retail, which has continued to perform well despite problems elsewhere on the high street.

Singer analyst Matthew McEachran said the tie-up offers Sports Direct a credible entry into the premium end of fashion at a low price.

Cruise, which has ten stores and turns over about 20m, is a particularly strong departure from the discount focus of Sports Direct as it stocks top of the range designers such as Dolce & Gabanna, Gucci and Hugo Boss.

But Freddie George, analyst with Seymour Pierce, suspects the deal has more to do with Ashley's rivalry with JD Sports.

"This acquisition looks more to do with taking on JD Sports, the leisure sportswear retailer, rather than positioning the Sports Direct business more up-market," George said.

Shares in Sports Direct closed up 3.46 per cent at 250.9p, having risen more than 130 per cent in the past 12 months.