Debenhams is at risk of falling into the hands of its lenders in a move that will clean out shareholders after the company and its financial backers reject a £150 million cash offer from Mike Ashley’s Sports Direct.
A pre-pack administration deal is expected to be announced on Tuesday morning that would affect Debenhams’ holding company, this means its 165 stores would continue to trade. However, shareholders’ stakes will be rendered worthless. The retailer’s banks and bondholders also want Debenhams to close about 50 stores via an insolvency process known as a company voluntary arrangement. Landlords will hold a vote on whether to approve the deal.
Sports Direct said Debenhams had turned down its offer of a £150 million rescue package in a deal which it hoped would keep the company in the hands of the shareholders. In a stock market announcement after the deal was rejected.
The most likely outcome for the chain is that the lenders will take control of Debenhams. They have lined up administrators to organise a pre-arranged deal under which Debenhams’ listed holding company will go into administration.
Debenhams has been struggling for a while and issued three profit warnings last year, it has a debt pile of £640 million. By the end of 2018, the chain announced it was increasing its store closure plans from 10 to 50 over a three to five year period. The company said it was not ready to release a list of which shops may be affected. Debenhams has 165 and employs around 25,000 people.
Laith Khalaf, senior analyst at Hargreaves Lansdown, said: “It looks like Mike Ashley has one final card to play, and that’s making a firm takeover offer for Debenhams. Even that seems unlikely to shift the retailer from the course it’s currently on, as it sounds like the department store is preparing to enter administration imminently.”
In a statement, Debenhams said: “The board confirms that it received a revised, highly-conditional, proposal from Sports Direct in the early hours of 9 April, which indicated a willingness of Sports Direct to underwrite an equity issue of £200m.
“The company’s lenders have confirmed to the company that the proposal, on the terms set out, was not sufficient to justify an extension to the 8 April deadline.
“The company anticipates making a further announcement during the course of the day following further discussions with its lenders.”
