Debenhams proposes restructuring, Sports Direct offers to buy Magasin du Nord

By

Barbara Santamaria

Published
Mar 22, 2019

Debenhams shares plunged on Friday morning after it revealed plans to launch a refinancing plan that could see shareholders’ equity wiped out.

The struggling department store group is seeking a £200 million funding lifeline from existing lenders to fend off the aggressive takeover advances of Sports Direct, which has been trying to attempt a boardroom coup at Debenhams for the past few weeks.

On Friday Sports direct offered to buy Debenhams’ Magasin du Nord Danish business for £100 million in cash to assist with its short term liquidity requirements, and proposed to appoint Mike Ashley as director and CEO of Debenhams.

But the British retailer has repeatedly rejected Ashley’s attempts, and is actively seeking alternatives to stay afloat. On Friday it said that the £200 million funding would allow it to pursue a number of restructuring options to secure the future of the business, but warned that some of these options, if materialised, “would result in no equity value for the company's current shareholders”.

Shares in the company plunged by more than 50% after the announcement before recovering slightly on Friday morning.

The restructuring could see Debenhams sell its shares to lenders in exchange for cutting its debt or a pre-pack administration process, reported Sky News. It has already earmarked almost 20 stores for closure early next year, with dozens more in the firing line.

Lenders have until Thursday 28 March next week to approve the cash call.

Debenhams rebuffed Sports Direct’s offer to buy Magasin du Nord hours after it was announced, saying “it does not address the company's funding and restructuring requirement, while balancing the interests of all stakeholders”.

The company said the Danish business, which runs six department stores across Denmark, is cash flow generative and a meaningful contributor to group profits. “As such, Magasin is an important part of any lending proposition and therefore any broader solution that protects value for the group,” it insisted in a statement.

It is the latest development in Debenhams’ ongoing battle to survive the challenging conditions on the UK high street and avoid becoming part of Mike Ashley’s Sports Direct. The British businessman already has a near 30% share in Debenhams, and last week offered a £150 million unsecured loan as part of his efforts to install himself as chief executive officer of the department store group. The deal would take his shareholding in Debenhams to 35%.

Debenhams has said it would consider the proposal, but lenders have ruled out accepting it, according to media reports.

FTI Consulting is understood to be working with the company's lenders.