London Briefing: Sports Direct may make play for Debenhams with takeover offer

Newcastle United owner Mike Ashley’s plans for department stores are unclear

 Debenhams on Oxford Street:   Sports Direct International has bought almost 5 per cent  of shares  in Britain’s second-largest department stores chain. Photograph:  Yui Mok/PA Wire

Debenhams on Oxford Street: Sports Direct International has bought almost 5 per cent of shares in Britain’s second-largest department stores chain. Photograph: Yui Mok/PA Wire

 

Just when Debenhams thought things couldn’t get much worse after its huge post-Christmas profits warning, up pops the maverick Mike Ashley to make life even harder.

Ashley’s Sports Direct group has splashed out almost £50 million on a near-5 per cent stake in Britain’s second-largest department stores chain and is keen to forge some sort of deal that it says should benefit both sets of shareholders. No further details of what Ashley has in mind have been revealed but the two sides are expected to meet shortly.

The combative manner of Ashley’s appearance on the Debenhams share register – without any prior warning to the Debenhams board – is typical of the uncompromising “pile it high, sell it cheap” sportswear billionaire and owner of Newcastle United Football Club, who has long pursued a “take no prisoners” approach to business.

He could have chosen to pick up the phone to Debenhams’ chief executive, Michael Sharp; it certainly would have been cheaper. But Ashley’s aggressive approach has certainly won him the attention of the Debenhams’ board, already on the back foot after terrible Christmas trading and the loss of its finance director on New Year’s Eve.

Ashley clearly believes taking a stake in the struggling retailer bolsters his negotiating position, although the Debenhams board is unlikely to see it that way. Or perhaps he believes the recent collapse in the share price has thrown up a good buying opportunity, particularly as the shares are trading at less than half their 2006 flotation level. Sports Direct shares, on the other hand, are more than double their 2007 float price.

While the Debenhams board must be understandably unsettled by Ashley’s interest, they are in dire need of something to save the business.

The department stores
chain has become trapped in a self-destructive spiral of discounting and seems unable to find a way forward.

Analysts suggest Ashley may be hoping to agree some sort of deal with Debenhams on the sportswear company’s more upmarket brands, such as Republic, or might have targeted the 155-strong department store chain to act as a “click and collect” service for Sports Direct. Or perhaps Ashley simply wants to negotiate concession space in Debenhams stores. Whatever it is he’s after, if Ashley can supply some answers to Debenhams problems, the board owes it to shareholders to give him a hearing. But any deal must benefit Debenhams investors too, not just the aggressive Mike Ashley.

And if he can’t reach agreement with the board, Ashley always has the option of going direct to Debenhams shareholders by launching a full-scale takeover offer.


****
It has taken more than four years, but UK inflation has at last hit the Bank of England’s official target of 2 per cent, after an unexpected fall last month. This takes Britain’s cost of living to its lowest rate since November 2009, when it was 1.9 per cent.

There were a number of factors behind the surprise fall – desperate discounting by high street retailers played a part, as did smaller than expected rises in food and drink prices, which offset hefty increases in gas and electricity bills and petrol prices.

In a pre-election year, the return to target is good news for the government, and prime minister David Cameron and his chancellor George Osborne swiftly took to Twitter to
claim credit.

It’s good news, too, for Bank of England governor Mark Carney, who has come under pressure to raise interest rates from their record low of 0.5 per cent as the strengthening of the economy gathers pace.

Unemployment has fallen faster than the bank expected, moving closer to the 7 per cent level at which Carney’s forward guidance policy suggests rates might be raised. Carney had initially expected the 7 per cent target to be reached sometime in 2016, but it is clear now it will be achieved well before then.

As the governor has repeatedly stressed, forward guidance targets are not set in stone, and a number of factors other than unemployment will be considered before interest rates are raised. But the inflation news certainly takes the pressure off an early
rate hike.

In the meantime, Carney will have a chance to tweak his forward guidance when he gives the quarterly inflation report to the City next month.


Fiona Walsh is business editor of theguardian.com

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