Retailer Debenhams was heading for a prepack administration on Monday, that would wipe out the holdings of billionaire investor Mike Ashley and fellow shareholders as lenders take control of the troubled retailer.
The development comes after the heavily indebted department store group rejected Mr Ashley’s latest rescue offer.
Mr Ashley's Sports Direct International said Debenhams had turned down its proposal to underwrite a £150 million equity raising on the same day that restructuring talks with creditors are due to reach a conclusion.
Mr Ashley had disclosed the last-ditch offer earlier on Monday, a move to prevent losing much of his equity investment in the department store chain.
Debt reorganisation
The latest rejection of the retail magnate comes after Debenhams gave Mr Ashley an ultimatum on March 29th to commit to a debt reorganisation on lenders’ terms or risk losing his investment when the company initiates a so-called prepackaged administration.
Debenhams was already preparing for that eventuality last week because Mr Ashley hadn’t agreed to the terms. Monday’s refusal makes administration even more likely.
Mr Ashley called on the company and its lenders to “actively engage in negotiations”. He said a cash offer valuing the chain at £61 million remained an option even after Debenhams rejected the equity raise. The retailer declined to comment on Mr Ashley’s offer and the statement.
Mr Ashley has been locked in a battle with Debenhams’ lenders, including banks and US hedge funds, as the chain seeks to restructure about £720 million of debt and cut its rent bills.
Floundering
The more than 200-year-old retailer is fighting to avoid the fate of many stores on the UK shopping streets that are floundering amid an increase in online shopping and weaker consumer confidence over Brexit.
A prepack administration would mean that shareholders would likely lose their investments; Sports Direct has a roughly 30 per cent stake. Debenhams’ shares, which have fallen more than 90 per cent over the past 12 months, were down 10 per cent Monday afternoon.
Ashley’s latest offer came after Sports Direct accused Debenhams of “a sustained program of falsehoods and denials”.
– Bloomberg
