Debenhams has told billionaire Mike Ashley to abandon his attempt to oust its board as it dangled the prospect of delaying a deal that would hand control of the company to its lenders.
Sky News has learnt that Debenhams wrote to Sports Direct International this weekend to set out four conditions that Mr Ashley would need to meet ahead of a deadline on Monday for a refinancing to be agreed.
The tycoon, who has been battling for weeks to prevent control of Debenhams passing to its lenders, had proposed a last-gasp deal involving a £150m equity-raising that he would underwrite and a package of measures to reduce its remaining £520m debt-pile.
Sources close to Sports Direct said on Sunday that Debenhams had responded to its latest proposal by setting out a four-point plan that Mr Ashley would need to agree to within hours.
Unless he does so, the 340 year-old chain is likely to be placed into a pre-pack administration on Tuesday, with hedge funds led by Silver Point taking ownership of the business.
The conditions laid out by Debenhams board are that Mr Ashley:
:: withdraws his request for an extraordinary general meeting aimed at ousting every board member apart from its finance director:: enters into a stabilisation agreement which would require him to refrain from public statements that could damage the company:: agrees a press release with Debenhams and its lenders that would be issued jointly on Monday:: provides a legal guarantee that the £150m he is pledging would be provided if Debenhams agrees to his request to become its chief executive.
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The last of those conditions is viewed by Debenhams’ directors as being the most important because of the risk to the company of Mr Ashley taking over as chief executive and subsequently reneging on the £150m funding lifeline.
Debenhams’ response does at least hold open the possibility of a deal being struck, although City sources pointed out that the chain’s board was now only in a position to recommend an extension to Monday’s deadline to the company’s lenders, rather than deciding upon such an extension itself.
The prospects of lenders agreeing to any such recommendation appeared remote on Sunday afternoon, although The Sunday Times suggested that Mr Ashley was likely to emerge with a formal takeover bid for Debenhams on Monday.
However, that too is expected to be rejected.
Sports Direct owns nearly 30% of Debenhams’ shares, an investment which at current share price implies a massive loss for Mr Ashley’s company.
If Debenhams goes into administration this week, as seems likely, its shares would be worthless.
FTI Consulting, which has been working with the company’s lenders in recent months, has been lined up to handle the administration process.
Mr Ashley took control of House of Fraser through a similar pre-pack deal last summer.
One source said that if Debenhams pursued that route, its lenders were then likely to use Lazard, the investment bank, to run a formal auction.
Sports Direct seeks support for £61.4m Debenhams bid
Debenhams shares surge further as Mike Ashley reveals the price he would seek if he were to lead a takeover of the chain
A debt-for-equity swap to reduce Debenhams’ £560m of borrowings would also follow, as well as a Company Voluntary Arrangement – led by KPMG – to slash rents and close loss-making stores.
Under the chain’s current plans, just under 20 stores have been earmarked for closure early next year, with dozens more also identified as future casualties.
Such a programme would entail thousands of job losses, adding to the huge number of redundancies in the retail industry during the last 12 months.
The scale of Debenhams’ problems underlines the crisis on Britain’s high streets, with Sir Philip Green’s Arcadia Group among the other prominent retailers considering drastic restructuring plans.
The billionaire, who also owns Newcastle United FC, has already forced the departure of Sir Ian Cheshire, Debenhams’ former chairman, and prevented chief executive Sergio Bucher from remaining on the board.
The department store chain, which traces its roots back to 1778, is said to believe that its wider financial restructuring would be easier to achieve as a privately owned company than as a listed business with the attendant disclosure obligations.
Debenhams has issued a string of profit warnings as trading conditions have deteriorated, prompting Sports Direct to accuse it of misleading investors.
Debenhams declined to comment while Sports Diirect could not be reached for comment.
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