Sports Direct offers Debenhams a £150m interest-free loan | Debenhams

Mike Ashley’s Sports Direct has offered to bail out Debenhams with a £150million interest-free loan in return for an additional 5% stake in the company, on top of a prior request to appoint Ashley as chief executive.

Sports Direct has presented its one-year loan proposal as an alternative to a £150m loan from Debenhams which this week said it was negotiating to secure existing lenders as the department store chain battles for its survival.

Ashley’s group said the loan would be interest-free if Debenhams issued shares that would allow Sports Direct to increase its stake from just under 30% to 35% without having to bid for the rest of the company. If he could not increase his stake, Sports Direct said, his loan would carry 3% interest.

Under Takeover Panel rules, a shareholder with 30% or more of a company must make an offer for the entire group, but this can be circumvented via a “laundering agreement” which would have to be approved by independent shareholders.

The loan offer is Ashley’s latest tactic in a battle with Debenhams and came hours after he accused the company’s board of issuing “deliberately misleading” statements.

In a letter sent to the department store chain after being told of a proposed profit warning on March 5, Sports Direct criticized Debenhams’ board for changing its mind just weeks after released a statement saying the company was “on track to deliver current year earnings in line with market expectations.”

The letter claimed that the board and chief executive of Debenhams had “no place at the head of a limited company or to make public statements to the market”, as his January 10 statement had come to light” at best incredibly optimistic or at worst deliberately misleading” given that it had issued a profit warning shortly afterward despite improving sales performance.

Sports Direct suggested the majority of shareholder interests were being undermined by “continued misleading public statements and cover-up and backstabbing in the refinancing process”.

Sports Direct is trying to oust all but one of the group’s directors and install Ashley, its founder and chief executive, as CEO. Sports Direct announced Ashley’s installation attempt last week.

Ashley has been at war with Debenhams ever since they rejected their £40m loan offer before Christmas and turned to their existing lenders to borrow the money instead.

The company saw the loan offered and Ashley’s subsequent actions, including the ousting of its former president, as an effort to gain control of its business at little cost.

The Sports Direct boss has made no secret of his desire to bring Debenhams closer to House of Fraser, the department store he bought from administration last year. Debenhams said in a statement on Wednesday: “We reject these unfounded and self-serving complaints. Debenhams’ board took advice at every stage to ensure its announcements complied with disclosure requirements. The company is seeking to execute much-needed restructuring – in the interest of all stakeholders – while its major shareholder tries to undermine the process at every turn.

The company has partly blamed funding costs on its profit warning, while the battle with Sports Direct has rattled suppliers, forcing them to demand more up-front payments.

But Sports Direct questioned whether ‘fiduciary duties were being exercised’ by the Debenhams board as it said the company was paying a ‘huge’ interest rate, 5% above the rate of benchmark interest, on its £40million loan from the banks and was likely to pay a similar amount on any other short-term loan.

The letter gives insight into the toxic relationship that has developed between the two parties, revealing that Sports Direct reported Debenhams to the UK Listing Authority and the financial services regulator after receiving a glimpse of the planned profit warning .

Ashley got a quick glimpse of the profit warning as part of the limited Debenhams financial information it has been receiving since signing a nondisclosure agreement several weeks ago as the board of directors of the company was trying to implicate him in its rescue bid.

Debenhams is trying to refinance £520m of debt due to expire next year.

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