The Sports Direct boss, Mike Ashley, has launched an extraordinary attack on Debenhams after the department store chain refused his offer of a £40m cash injection despite “the worst November for retailers in living memory”.
In a letter addressed to the Debenhams chief executive, Sergio Bucher, Ashley urged the board to reconsider the offer from Sports Direct, which is the store chain’s largest shareholder.
EXCLUSIVE: here’s the letter Mike Ashley sent Debenhams boss pic.twitter.com/a0B7kxFqhY
— Ashley Armstrong (@AArmstrong_says) December 13, 2018
Ashley, who also owns Newcastle United, told analysts the refusal of an interest-free loan in exchange for an increased stake was “like being offered Messi on loan and turning it down”.
He added: “Retailers can’t take that kind of November. It will literally smash them to pieces.”
In the letter he cited Debenhams’ recent woes and the bleak trading conditions blighting Britain’s high streets.
Maplin, Toys R Us and Jacques Vert have all collapsed in recent months, but several retailers and restaurant groups are facing financial problems and are trying to close stores or negotiate rent cuts.
Gourmet Burger Kitchen: The upmarket burger chain wants to close 17 of its 85 restaurants via an insolvency process known as a company voluntary arrangement (CVA)
House of Fraser: The department store chain is expected to close about 12 stores after being bought out of administration by Mike Ashley. It had agreed a CVA under which 31 stores were to close, but this lapsed on administration.
Homebase: The DIY chain is closing at least 42 stores after completing a CVA organised by new owner Hilco. The restructuring expert bought the DIY chain for £1 from Australia's Wesfarmers who botched an attempt to bring its Bunnings chain to the UK.
Poundworld: The discount retailer has closed all its 355 stores, with the loss of 5,100 jobs after falling into administration in June.
Cau: The owner of the Gaucho and Cau steakhouses fell into administration in July leading to the closure of all 22 Cau restaurants, with loss of 750 jobs. The groups lenders have since bought the 16 Gaucho outlets.
Mothercare: The chain is closing 60 of its 137 outlets after agreeing a CVA in May. Additional closures in July mean 900 jobs will be lost.
Carluccio's: The Italian chain secured a CVA to close 30 of its 99 restaurants in late May.
New Look: The chain is closing 85 stores in a restructuring plan announced earlier this year. Its chairman, Alistair McGeorge, said the future of a further 39 stores was in doubt as talks with landlords continued.
Carpetright: The retailer obtained a CVA in April to close 92 of its 409 UK stores in September with the loss of about 300 jobs.
Prezzo: In March the Italian-themed restaurant group secured a CVA to close 94 of its 300 restaurants, with the loss of 500 jobs. Rent cuts were agreed on a further 57 locations.
Jamie’s Italian: The chain closed six locations in 2017 and this year agreed a CVA to close about a third of its 35 loss-making outlets.
Byron: The upmarket burger chain is closing up to 20 of its 67 restaurants after a CVA agreed in January.
Debenhams: The under-pressure department store chain has said it could close up to 50 of its 165 stores stores and wants to get rid of space at 30 more by bringing in gyms and other services.
M&S: The high street stalwart wants to close 100 outlets – a third of its main stores by 2022 as part of a 'radical transformation' plan.
Ashley wrote: “November was the worst November for retailers in living memory. The market is saying that you’ve got no credit insurance, advisers and the banks are telling key suppliers that they shouldn’t trade with you at a level above which they can afford to lose … Additionally it is speculated that the company currently has a zero chance of survival.”
Shares in Debenhams fell 4% after the letter emerged, to 5.5p, having started the year at 35p. It left the retailer with a market value of just £67m, vastly lower than its £321m of debt.
Ashley suggested that the loan offer was a lifeline for Debenhams and its best chance of survival.
He wrote: “We’ve seen this before, with Blacks and HoF [House of Fraser]. They didn’t want any help either. We don’t want to see Debenhams fail. It’s not in our interest to see it fail but without something changing rapidly all of the shareholders risk getting wiped out, never mind diluted.”
It is thought that as part of the loan condition, Sports Direct is seeking a further 10% equity stake in Debenhams, on top of the 28% it already owns.
A spokeswoman for Debenhams said: “We welcome Sports Direct’s proposal as a clear demonstration of their willingness to support the company. However, as the offer came with conditions that could affect the interests of other stakeholders, while the board does not think it could accept the proposal as presented, it has invited Sports Direct to engage as part of our broader refinancing process.”
Shares in Sports Direct were also down on Thursday, by 12% at 244p – making it the biggest faller on the FTSE 250.
The drop followed Ashley’s gloomy comments about trading during November, which he told analysts was the “worst on record” as he presented the sportswear group’s first-half results.
He also revealed that the newly acquired department store House of Fraser was losing nearly £3m a week in the wake of its summer rescue by Sports Direct.
Sports Direct said House of Fraser lost £31.5m in the 11 weeks after it bought it out of administration. The losses put a drag in the financial performance of its new owner, with Sports Direct reporting a 27% decline in underlying profits to £64.4m over the six months to 28 October.
Ashley said the group had delivered an “impressive” performance given the retail sector’s current woes. Last week he told MPs investigating the future of the high street there should be a new tax levied on retailers that make more than a fifth of sales online.
“It is not my fault the high street is dying; it’s not House of Fraser, not Marks & Spencer or Debenhams’ fault,” said Ashley at the select committee hearing. “It is very simple why the high street is dying. It is the internet that is killing the high street.