This article is from the source 'guardian' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at http://www.theguardian.com/business/2014/jan/13/sports-direct-buys-stake-debenhams-shares

The article has changed 4 times. There is an RSS feed of changes available.

Version 2 Version 3
Sports Direct buys 4.63% stake in Debenhams Sports Direct buys 4.63% stake in Debenhams
(about 13 hours later)
Sports Direct has said it has bought almost 5% of Debenhams and that it wants to work with the company "to create value". One of the high street's more unlikely relationships was announced when Sports Direct revealed it had bought almost 5% of Debenhams.
The sports retailer, founded by the Newcastle United FC owner, Mike Ashley, informed the City it had bought 56.8m Debenhams shares without the knowledge of the department store group's board. Britain's biggest sports retailer, founded and controlled by the Newcastle United FC owner, Mike Ashley, informed the City it had bought 56.8m Debenhams shares without the knowledge of the department store group's board. Ashley's firm called on the ailing group's board to work with Sports Direct in the interests of both companies.
Sports Direct bought the shares in the last week and told Debenhams on Friday. It said it had told Debenhams it wanted the companies to co-operate and that it intended to be a "supportive shareholder".
In a statement to the stock exchange, Sports Direct said: "Sports Direct wishes to explore options at an operational level to work together with Debenhams to create value in the interests of both Sports Direct's and Debenhams' shareholders."In a statement to the stock exchange, Sports Direct said: "Sports Direct wishes to explore options at an operational level to work together with Debenhams to create value in the interests of both Sports Direct's and Debenhams' shareholders."
Sports Direct revealed the 4.63% stake under a requirement to declare an interest of more than 3% in the shares of another listed company. Debenhams shares jumped 7% on Friday. Sports Direct bought the shares in the past week and told Debenhams on Friday, announcing the 4.63% stake to the stockmarket yesterday under a requirement to declare an interest of more than 3% in the shares of another listed company.
Debenhams shares tumbled after the company published a profit warning on 31 December and its finance director quit two days later. It said sales had been hit by aggressive discounting in the runup to Christmas, though other retailers blamed Debenhams for starting the price war. The sports discounter said it wanted to be a "supportive shareholder" but it has pounced with Debenhams at a low ebb. Debenhams shares plunged on New Year's Eve, wiping £125m off the value of the company after it warned that dire Christmas trading meant its half-yearly profits would be more than 25% lower than in the same period last year. It said sales had been hit by aggressive discounting in the runup to Christmas, though other retailers blamed Debenhams itself for causing the price war with an endless stream of sales and promotions. Next, one of its main rivals, resisted pressure to cut prices and had record sales.
The department store group's shares had risen 5.6% to 86p by 9am on Monday while Sports Direct shares were little changed at 756p. Clive Black, a retail analyst at City broker Shore Capital, said low consumer spending power, competition from Next, John Lewis and Primark and the discount trap Debenhams had set for itself conspired to batter the company at Christmas.
Sports Direct is best known for its chain of discount stores selling trainers and other sports and leisure wear. But it also owns the fashion chains USC and Republic, high-end clothing outfitters Cruise and Flannels and non-sports brands such as Firetrap. Ashley has considered buying House of Fraser, another department store chain, in the past. "Debenhams has become the squeezed middle of the clothing market and their trading strategy has made things worse. Consumers aren't stupid, especially when money is tight, and if you rely on discounts then they will just sit on their hands and wait for the next promotion to come along."
Ashley has a record of buying stakes in other companies and putting pressure on the management, including his former rival JJB Sports and Black Leisure. Late last year he threatened to buy 5% of Adidas after the sporting goods company refused to let Sports Direct stock Chelsea FC kits. Two days after the profit warning, Debenham's finance director Simon Herrick quit. Already under fire over Debenhams' financial performance, he had been embarrassed by the emergence of a letter he wrote to suppliers demanding a 2.5% discount, dubbed a "Santa levy", just before Christmas.
Sports Direct declined to say how the companies could work together, leaving industry analysts to speculate about its plans. Ashley's gambit brings together his bruising style of business with one of the most venerable names in British retail. Debenhams is one of Britain's oldest store groups, founded in 1778 as a single draper's shop in London. It became Clark & Debenham in 1813 and grew to be an upmarket focal point for many high streets in the last century.
The veteran retail analyst Nick Bubb said the news cleared up why Debenhams shares had soared 7% on Friday, adding: "No doubt Mike Ashley has some ideas on how to trade from Debenhams' surplus store space and he has some experience of making big-space retailing work. Dragging Debenhams downmarket and turning it into even more of a discount store may not appeal to retail purists." Ashley founded Sports Direct in 1982 in Maidenhead and expanded his no-frills stores by offering big discounts while buying up brands such as Lonsdale, Slazenger and Donnay.
The Cantor Fitzgerald analyst Freddie George said the stake in Debenhams was a distraction for Sports Direct and that Ashley's interest did not yet mean Debenhams was "in play" as a takeover target. Sports Direct floated in 2007 but Ashley still owns more than 60%. Poor early results and erratic communication made the company unpopular with investors early on but booming sales to cash-strapped consumers have made it a stock market favourite and pushed it into the FTSE 100 index of leading shares. Yet the two retailers have more in common than their differing histories suggest.Sports Direct is best known for its chain of low-budget stores but it also owns the fashion chains USC and Republic, high-end clothing outfitters Cruise and Flannels and non-sports brands such as Firetrap and Kangol.
"This would imply to us that the company [Sports Direct] is potentially considering splitting the fashion assortment from the sports ranges in its stores over the medium term." Debenhams has a venerable heritage but its critics point to tired-looking stores and outdated clothing ranges adding to the vicious circle of seemingly endless promotions. Sports Direct declined to say how it thought the companies could work together, leaving industry analysts to speculate about its plans.
Debenhams said: "Debenhams is open-minded with regard to exploring operational opportunities to improve its performance, alongside its own existing and planned initiatives, in order to create value for all Debenhams shareholders." Ashley has form when it comes to buying stakes in other retailers to put pressure on the management, including his former rival JJB Sports and Blacks Leisure. Blacks and JJB both went bust but Ashley remains willing to use his financial clout to get results. Late last year he threatened to buy 5% of Adidas after it refused to let Sports Direct stock Chelsea FC kits.
Ashley has also considered buying House of Fraser, another department store chain, in the past. With a market value of £4.5bn, Sports Direct is more than four times the size of Debenhams so a full takeover of Debenhams is feasible.
More constructively, Sports Direct, which offers 24-hour delivery service online, could help Debenhams improve its internet operations to catch up with Next and John Lewis, whose online Christmas sales surged.
A leading Debenhams shareholder said: "This was the year when online really took off. That means Debenhams needs to be able to offer click and collect sales in store the next day instead of in two or three days."
Debenhams gave Ashley's move a cautious welcome but suggested it would not let Ashley push his own interests on the company: "Debenhams is open-minded with regard to exploring operational opportunities to improve its performance, alongside its own existing and planned initiatives, in order to create value for all Debenhams shareholders."
Resisting Ashley's proposals may be easier said than done. City investors saw the announcement of the Sports Direct stake as a good thing for Debenhams, whose shares closed up 5% at 85.65p.
Ashley could use the stake to exert pressure on Debenhams to sell Sports Direct brands but this may not be the answer for stores already losing out to the more upmarket John Lewis with Marks & Spencer showing signs of revival in clothing.
The veteran retail analyst Nick Bubb said: "No doubt Mike Ashley has some ideas on how to trade from Debenhams' surplus store space and he has some experience of making big-space retailing work. Debenhams need to get away from discounting, so any Mike Ashley-inspired lurch downmarket would probably have House of Fraser and John Lewis laughing all the way to the bank."
Our editors' picks for the day's top news and commentary delivered to your inbox each morning.Our editors' picks for the day's top news and commentary delivered to your inbox each morning.