Debenhams could enter administration following Sports Direct snub
PUBLISHED: 11:48 29 March 2019 | UPDATED: 12:21 29 March 2019
Debenhams could go into administration within days following a £200m refinancing to avoid a takeover from Sports Direct tycoon Mike Ashley.
The move from the retail giant, which has stores in Ipswich and Bury St Edmunds, is likely to wipe out existing shareholders such as Mr Ashley.
The billionaire had been attempting to seize control of Debenhams and install himself as chief executive, but today (Thursday, March 29) the retailer received approval from the majority of its bondholders to press ahead with an alternative £200m refinancing.
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The plan allows the retailer to begin a restructuring process including store closures and rent reductions.
Of the £200m, £101m will be drawn down immediately.
However, the other £99 million will only be made available if Sports Direct - or any other shareholder with a stake of more than 25% - fulfils one of two conditions by April 8.
Under option one, Mr Ashley would have just under a week to put his money where his mouth is and make a takeover offer which includes arrangements to refinance the group’s debt.
Alternatively, he can call off the emergency meeting he has requested to install himself on the retailer’s board and commit to either providing funding for the business or underwriting the issue of new shares.
If neither course of action is taken by the deadline, the company will go into a pre-pack administration, handing control to its lenders and wiping out shareholders, including Mr Ashley’s near 30% stake.
This would then allow for the transfer of the £99 million to the company under its new ownership.
Debenhams added that it will be contacting Mr Ashley to gauge his interest.
Concerns were raised about the future of the Debenhams in Ipswich, which is the town’s biggest store, back in October 2018 when the firm revealed it was planning to close up to 50 stores in the next five years.
The branch is understood to be one of the more profitable Debenhams bases in the UK so is expected to survive the cull.
Debenhams chairman Terry Duddy added: “We are pleased to have agreed this comprehensive funding package which secures the future of the Debenhams business and provides reassurance for Debenhams’ employees, pension holders, suppliers, lenders and other stakeholders.
“We will now move to the next phase of the restructuring of the business, which includes reducing rents and reshaping our store portfolio, as we have referenced in previous announcements. These actions are necessary to ensure the strongest possible platform to support the business going forward.”