Mike Ashley’s Sports Direct officially confirmed an offer to underwrite a £150m share issuance by Debenhams today on the condition that Ashley be made chief executive.
The sports store chain said the underwriting of the equity issuance, which would see Sports Direct take on the financial risk involved in selling new equity to current shareholders to raise funds, would form “part of a comprehensive refinancing of Debenhams”.
However, Debenhams' lenders must agree to write off £148m of debt under the terms of the offer.
Sports Direct made the offer on Friday night, but has not confirmed it until now. Debenhams' shares soared 12.74 per cent on the news, but their value is so low that was only equivalent to a 0.26p rise to 2.30p.
Sports Direct said the proposal was “one of a number of potential options under consideration” and was “subject to a number of conditions” including installing Ashley as chief executive, something he has long demanded.
Ashley’s company said it also continues to “give active consideration” to the option of buying department store chain Debenhams for cash at 5p per ordinary share.
The billionaire said he has until 22 April to say whether he intends to buy the company, and that the cash buyout and the equity swap are alternatives that could not both happen.
However, if a refinancing deal is not struck today between Ashley and Debenhams, hedge funds led by Silver Point are expected to take full control of the business tomorrow.
Yesterday the tussle between the two retailers took a bizarre turn as Ashley continued to fight to stop the department store from entering into a pre-pack administration.
Ashley accused Debenhams advisers of a “sustained programme of falsehoods and denial” and called for two directors to take a lie detector test.
Sports Direct released a statement last night saying Ashley and two other Sports Direct members have taken lie detector tests to prove they were telling the truth about a meeting they had with Debenhams bosses.
Ashley's score was "so significantly high as to be considered rare in comparison to others", Sports Direct claimed.
It also called on regulators to "investigate fully how Debenhams is currently being run and how the market and stakeholders are being misled".
If Ashley cannot secure a deal he faces his 30 per cent stake in Debenhams - and other shareholders' own stakes - being wiped out entirely.
Laith Khalaf, senior analyst at Hargreaves Lansdown, fears lenders won’t back Ashley’s latest bid, saying the conditions are too costly.
They have already invested £101m into a Debenhams rescue package, and stand ready to invest anothrt £99m if Sports Direct can’t reach an agreement, he pointed out.
“In theory a deal could be struck, but relations seem far from cordial, and the Debenhams management look set on giving the lenders control of the high street chain,” he added.
However, Khalaf said Debenhams should consider Ashley’s offer properly to save some value for shareholders, warning shares are close to being worthless.
“The difficulty is that as part of its recent refinancing, Debenhams has already agreed to terms which means lenders approach any negotiations from a position of strength,” he said.
“It seems most likely therefore, that Debenhams shares will soon cease to have any value, as lenders take full control of the retailer.”