Debenhams admitted on Friday that it needs the help of its largest shareholder, Mike Ashley’s Sports Direct, after it locked down a £200m rescue package from lenders to keep the business going.
The struggling department chain said it got about half of the £200m upfront, but in order to get the rest of the money, it needs to prove by 8 April that it had worked out a deal with Sports Direct that would sort out its debt and financial issues.
If it can’t arrange a suitable deal with Sports Direct or another company, its shareholders could be wiped out entirely and lenders would take control of the business.
But Debenhams (DEB.L) resisted the advances and repeated on Friday that the offers did not provide a “comprehensive solution.”
“Mike Ashley’s now between a rock and a hard place. He faces either seeing his stake in Debenhams disappear, or having to stump up cash to keep shares in the company alive,” said Hargreaves Lansdown analyst Laith Khalaf.
Sports Direct said on Friday it was “giving further consideration to Debenhams’ announcement.”
Debenhams stock surged by about 40% after the cash injection was announced. However, it’s still down by nearly 90% over the past 12 months. Shareholders still face the risk of being extinguished in the coming days if Sports Direct isn’t able to work out a deal.
Khalaf said earlier this week that the stock was “behaving like a kangaroo in a trampoline park.”
“We are pleased to have agreed this comprehensive funding package which secures the future of the Debenhams business and provides reassurance for Debenhams’ employees, pension holders, suppliers, lenders and other stakeholders,” said Debenhams chairman Terry Duddy in a statement on Friday.
Debenhams management is now planning to focus on reducing rents and closing stores.
“These actions are necessary to ensure the strongest possible platform to support the business going forward,” Duddy said.
Retail billionaire Ashley started up Sports Direct in 1982 in Maidenhead. It now employs 17,000 people. The business took control of House of Fraser last year in a deal worth £90m.