Debenhams on the brink of administration as board reject Ashley’s bid

Posted on 9 April, 2019 by admin

Since the new year there as been bitter battle between Mike Ashley and Debenhams board to purchase the troubled department store, as it sits on the brink of insolvency.

A bid to gain control between Debenhams’ biggest company’s lenders – who include, Silver Point Capital, a North American hedge fund and Mike Ashley who controls Sport Direct, which are the largest shareholder.

On Friday evening, Ashley submitted a £150 million rescues bid to prevent the department store chain to fall into the hands of its lenders. He has since increased the level of the loan to £200 million.

Debenhams 2018

The Debenham’s board members spent the Saturday and Sunday discussing with creditors whether to accept the offer put forward by Ashley.
As the board rejected Ashley’s bid on Monday afternoon, trust between the two sides has completely broken down.

It is also expected that store closures could put at least 4,000 jobs at risk. For some landlords this could leave them out-of-pocket with massive mortgages and rates to cover.

In the past Ashley has tried repeating removal of board members of Debenhams, accusing directors of “incompetence” and being “deceitful” and going as far as suggesting that they were trying to wreck shareholders value by scheming with lenders.

Ashley who has a 30% stake in the company, which was valued once at £150 million.

It is now expected that a pre-pack administration will start, perhaps as early as this morning, where the outcome is agreed before administrators are called in. The result would mean that shares in Debenhams will be reduced to nothing, wiping Ashley out while keeping the business together.

The department store would immediately by de-listed from the stock exchange and start again as a private company, which would be now controlled by its leaders. They would trade in an unspecified amount of the £560 million of debt which they are owed for control of the Company.

Looking forward, the Debenhams board have expressed a willingness to a restructuring which includes, “a significant overall reduction in the group’s rent burden.”

The department store can not go on in its current form. This means having fewer shops, fewer employees, reduced debt and will be privately owned by the previous lenders.

It’s seen as likely that if the above outcome transpires, the Courts may well judge the way the circumstances unfolded by way of a legal challenge by former shareholders.

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