Mike Ashley declares war on Debenhams after loan rebuff

Sports Direct tycoon Mike Ashley on Thursday went to war with struggling Debenhams after the department store chain’s top brass refused a £40 million loan from the billionaire.

Ashley, which owns 29.7% of Debenhams, sent an email to its chief executive Sergio Bucher containing dire warnings about the chain’s prospects and offering the financial support to help revive it.

He added that Debenhams was facing a cash squeeze after credit insurers had pulled the plug on cover they provide to suppliers in case the company goes bust. Suppliers, in turn, “are managing themselves out of stores”, he said, and “additionally it is speculated that the company currently has a zero chance of survival”.

The Newcastle United owner said last week that failed House of Fraser, which he bought from administration for £90 million in August, could merge with Debenhams. Under his latest plans he would inject the funds in return for an extra 10% stake and a waiver from being forced to make an offer for the whole company under takeover rules.

Ashley added: “If I’m sounding extremely frustrated — well I am. We’ve seen this before… we don’t want to see Debenhams fail. It’s not in our interest to see it fail but without something changing rapidly all of the shareholders risk getting wiped out.

“What we’re offering is immediate funding to help Debenhams secure its future. We’re not saying don’t try to do a refinancing if that’s what you ultimately want and need to do, not that we won’t be supportive in that regard. We just don’t think that time — or history — is on your side. ”

He demanded a response by Friday lunchtime to his email, adding: “I can’t see how our headline proposal to provide a £40 million interest-free loan… could possibly be seen or portrayed as a negative in any shape or form.”

Debenhams said: “We welcome Sports Direct’s proposal as a clear demonstration of their willingness to support the company. However, as the offer came with conditions that could affect the interests of other stakeholders, while the board does not think it could accept the proposal, as presented, it has invited Sports Direct to engage as part of our broader refinancing process.”

The department store chain, which has suffered increasing pressure from online rivals and higher costs, saw shares fall 5%, or 0.3p, to 5.5p.

House of Fraser ‘pain’ hurts Sports Direct

Sports Direct on Thursday felt the effects of buying loss-making House of Fraser, with boss Mike Ashley admitting it will be a “significant challenge” to turn it around.

Ashley’s business saw underlying profits fall 26.8% to £64.4 million from £88 million for the half year to October, despite revenues rising to £1.8 billion.

The tycoon, who has been using Sports Direct to snap up firms such as failed Evans Cycles and House of Fraser, said the department store chain made a half-year loss of £31.5 million since he bought it. The business will continue to weigh on profits next year, but “things are moving in the right direction to turn it profitable as soon as possible”, deputy finance chief Chris Wootton said.

He added that some “short-term pain” was expected and the plan to turn it into “the Harrods of the High Street” was on track. Ashley will also devote some floors to Flannels — a luxury fashion business he took over last year — in some House of Fraser stores.

Excluding House of Fraser, underlying profits at the company were up 15.5% to £180 million. It still makes most of its money from Sports Direct shops, but sales were flat.

“In a terrible situation on the High Street, having a flat half is a good result,” said Wootton. “We’re not so arrogant to say we’re not going to get a splash in the tsunami, but it’s a resilient business.”

Ashley recently told MPs that the High Street is “already dead” with increasing pressure coming from internet retailers. He called for a 20% tax on retailers which make more than a fifth of their sales online.

He also warned on Thursday that fellow retailers will be in trouble as “[sales in] November was the worst on record”. He added: “No one could have budgeted for that. It will literally smash them to pieces”.