Mike Ashley isn't averse to taking a flutter. This time, the Newcastle United owner has taken a bet on Tesco - his company, Sports Direct, has entered into a put option agreement with Goldman Sachs on 23 million of its shares, which could leave it with a 0.28 per cent stake in the retailer, worth £43m (at the moment).
In effect, a put option gives Ashley the right to sell his shares at a certain price within a specified period of time, meaning he's betting on the supermarket's shares rising. Since Monday when it revealed a £250m black hole in its profits, Tesco's shares have lost around 15 per cent of their value, so it's a risky bet.
Mike van Dulken, head of research at Accendo Markets, said:
In return for a premium, [Ashley has written/sold] a contract giving Goldman Sachs the right to sell him (oblige him to buy) TSCO shares at an agreed price in the future and is essentially him placing a bullish bet on the TSCO share price recovering from its recent 11yr lows. If the shares are trading above the agreed price on the contract’s expiry Ashley pockets the difference but if they are below he will have to pay out the difference.
Retail analyst Nick Bubb added:
Via a typically complicated put option arrangement, the great man has tried to call the bottom in the Tesco share price, via a £43m investment that “reflects Sports Direct's growing relationship with Tesco and belief in Tesco's long-term future”. With mighty Blackrock selling, it clearly takes two to make a market, but we suspect that most Sports Direct shareholders would probably prefer Mike Ashley to stick to what he’s good at...and not go round punting in Tesco shares.
Ashley himself has form when it comes to taking punts on struggling businesses: in January, he made a similar bet on a 6.6 per cent stake in Debenhams.
Tesco's future, though, looks bleaker. Having been put on negative watch by all three major credit ratings agencies, last night it emerged chief financial officer Laurie McIlwee, who resigned in April but agreed to stay on until a successor was put in place, was in fact ousted almost immediately.
Chairman Sir Richard Broadbent has refused to be drawn on whether it has been "days or weeks" since McIlwee was last involved with Tesco.