16th Jan 2014 14:51
LONDON (Alliance News) - Mike Ashley's Sports Direct International PLC Thursday sold the stake it bought in struggling department store operator Debenhams PLC just three days ago, replacing it with what is effectively a bet that the Debenhams share price will fall further.
In a statement, 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.
It didn't provide any other details of the deal, including the so-called exercise price or the duration of the option.
The exercise price is the reference price for the option. If the Debenhams share price is below that price when the option expires, Sports Direct has the right to settle the option by buying 81.2 million Debenhams shares, or to pay a cash amount to settle it. If the Debenhams share price is above the exercise price, Sports Direct will receive a premium - part of the GBP64 million total exposure it references - and will have no further obligations under the option.
It's another savvy move by Ashley and suggests he expects the Debenhams turnaround to take some time, with shares falling further in the meantime.
In its statement Monday, Sports Direct had pledged to work with Debenhams to improve its faltering performance and be a supportive shareholder, an offer that the department store company said it was open to.
Debenhams had a dire Christmas, 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. Its performance contrasted with those of its two biggest rivals, House of Fraser, and John Lewis Partnership, both of which reported strong Christmas trading performances.
FTSE 100-listed sports fashion retailer Sports Direct has expanded significantly over the last thirty years by snapping up smaller sports brands and rivals. It has about 560 stores in the UK and 260 stores in Europe, selling sports equipment.
Sales in its last financial year were GBP2.19 billion. It has made Ashley, one of the biggest characters in UK retailing, a billionaire, and he is also known for his ownership of Newcastle Utd football club.
Shares in Sports Direct International were down 2.2% Thursday afternoon at 721.00 pence per share, while Debenhams was down 2.1% at 81.50 pence a share.
Story Updated By Rowena Harris-Doughty; [email protected]; @rharrisdoughty
Original Story By Hana Stewart-Smith; [email protected]; @HanaSSAllNews
Copyright © 2014 Alliance News Limited. All Rights Reserved.
Related Shares:
DebenhamsSports Direct