7th Apr 2014 13:58
LONDON (Alliance News) - Sports Direct International PLC, the UK's biggest sporting goods retailer by revenue, has bought an 11% stake in House of Fraser, a person familiar with the situation told Alliance News Monday, injecting itself into the agreed takeover of the British high street retail chain by Chinese conglomerate Sanpower Group Co Ltd.
The 165-year old department store chain recently finalised a takeover deal with Sanpower, giving House of Fraser an enterprise valuation of GBP450 million, although the retailer is yet to make a formal announcement. The Nanjing-based conglomerate led by founder Yuan Yafei holds an 89% stake after the deal.
Initial reports claimed that billionaire Mike Ashley, the founder and deputy chairman of Sports Direct, bought up an 11% stake in House of Fraser from Scottish business man Sir Tom Hunter. However, the person familiar with the matter said Sports Direct bought the stake.
Sports Direct is yet to formally announce the transaction.
Back in July 2011, Hunter sold an 80% stake in his fashion chains USC and Cruise to Sports Direct, for a total cash consideration of GBP7 million, while retaining a 20% shareholding and remaining as chairman of both companies.
House of Fraser is threatening legal action against Hunter and Ashley following the House of Fraser stake sale, as it claims that pre-emption rights attached to the stake mean Hunter should have offered the shares first to the company?s other investors, which it believes has not been the case.
House of Fraser said there will be an investigation to clarify the details.
"House of Fraser has noted the share sale by Sir Tom Hunter to Mike Ashley. We have sent legal letters to both parties, reminding them of the proper procedures to transfer shares, which have not been followed. This situation has no impact on our plans to sell to Sanpower Group and we will be making an announcement in due course," a House of Fraser spokesperson said Monday.
House of Fraser said it will formally announce the sale of the company to Sanpower either Tuesday or Wednesday morning, as it is a bank holiday Monday in China.
Before the deal with Sanpower, the House of Fraser board had been looking at various ways to raise new funds, including either a flotation or takeover talks.
The retailer had previously been in talks with upmarket French department store chain Galeries Lafayette, although talks came to an end in January after the French retailer was beset by internal squabbling.
Last week, Sports Direct's shareholders again rejected Ashley receiving a GBP72.5 million share bonus package. The package was due to be put to a vote at an annual general meeting, however the retailer cancelled the meeting and vote after the proposal failed to gather enough shareholder support.
Earlier this year, Sports Direct sold the stake it bought in struggling department store operator Debenhams PLC just three days after acquiring the stake, and replaced it with what was effectively a bet that the Debenhams share price would fall further.
In January, the company said it had sold its 4.6% stake in Debenhams, and instead entered into an option agreement that will activate if Debenhams shares fall below a certain level in the future. Its maximum exposure to the option is about GBP64 million.
This was just days after Debenhams reported that it had a dire Christmas period, with Chief Financial Officer Simon Herrick resigning just days after the retailer issued a profit warning and ceased its share buyback, citing heavy discounting behind a drop in profits.
It was a savvy move by Ashley, which suggests that he expects the Debenhams turnaround to take some time, with shares falling further in the meantime.
Sports Direct shares were trading 2% lower Monday afternoon at 904.00 pence per share.
By Rowena Harris-Doughty; [email protected]; @rharrisdoughty
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