Sports Direct has offered to bail out Debenhams with a £150m loan in exchange for additional equity in the business.
The sports and leisure giant, which is Debenhams’ largest shareholder with a 29.9% stake, said the 12-month loan would be interest-free, on the basis that Sports Direct receives an additional 5% shareholding in the retailer.
Should Debenhams not wish to give up more equity to Sports Direct, Mike Ashley’s business would charge 3% interest.
Debenhams said this morning that it would “give careful consideration” to the proposal.
Sports Direct made the offer last night as an alternative to the £150m loan Debenhams is battling to secure from its existing lenders.
It added that, under the terms of the loan, £40m would be used to repay Debenhams’ £40m bridge facility, while the remaining £110m would be available for general working capital.
Ashley would also become chief executive of Debenhams – a move that Sports Direct has previously pushed for.
Under Takeover Panel rules, a shareholder owning 30% or more of a company must make a full takeover bid for the whole business, but this can be sidestepped via a “whitewash agreement”. That would have to be approved by independent shareholders.
Debenhams said that any third-party loan would require the consent of lenders and noteholders, but insisted it would “give careful consideration to the proposal”.
It vowed to “engage with Sports Direct and other stakeholders” as it races to secure its survival.
The loan offer comes as Ashley continues to crank up the pressure on Debenhams. As reported yesterday, Sports Direct said it was reporting the beleaguered department store chain to the FCA for what it dubbed a “misleading” Christmas trading update.
In a letter sent to Debenhams earlier this month, Sports Direct hit out at the Debenhams board for issuing a profit warning just weeks after it claimed the business was “on track to deliver current-year profits in line with market expectations”.
The letter said Debenhams’ Christmas trading update, issued on January 10, was “at best impossibly optimistic or at worst deliberately misleading”. It added that the retailer’s board and chief executive Sergio Bucher had “no place leading a plc or in making public statements to the market”.
Sports Direct has already ousted former chairman Sir Ian Cheshire and boss Sergio Bucher from the Debenhams board, although the latter has continued in his role.