Debenhams Plc, the 241-year-old U.K. department-store chain that anchors many of the country’s troubled shopping streets, was taken over by lenders after rebuffing a last-minute offer from billionaire Mike Ashley.
The retailer entered a form of U.K. insolvency proceedings that allowed U.S. hedge funds and other lenders to take control. Stores employing about 26,000 people will continue to operate as normal, but shareholders’ stakes are now worthless.
The so-called prepackaged administration culminates a months-long battle between Ashley, whose Sports Direct International Plc owned about 30 percent of Debenhams, and lenders seeking to protect their investments via a 720 million-pound ($940 million) debt restructuring. The two sides failed to come to an accord even after Ashley improved a last-ditch proposal to salvage his stake.
Administrator FTI Consulting will seek a sale of the company immediately, which could give Ashley a new opportunity to bid. Proceeds will be used to fully repay debt and it’s unlikely there will be any cash left over to go to shareholders, Debenhams said in a statement Tuesday.
“It is disappointing to reach a conclusion that will result in no value for our equity holders,” Debenhams Chairman Terry Duddy said in the statement. “However, this transaction will allow Debenhams to continue trading as normal, access the funding we need, and proceed with executing our turnaround plans.”
Store closures
Debenhams was already planning to close 50 of its 241 stores and seek rent reductions to tackle the effects of a wider crisis in U.K. retail that’s claimed household names from department-store owner BHS to the British arm of Toys “R” Us Inc. The department-store operator has struggled to develop its online business as consumers shift purchases to Amazon.com Inc. and other e-commerce providers, with Brexit-related jitters hitting spending.
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Debenhams’ secured lenders have been in the driving seat in negotiations since extending a lifeline in February. The company gave Ashley an ultimatum last month to commit to a restructuring on creditors’ terms or risk completely losing his investment. The lenders withheld 99 million pounds of funding until they gained control.
The creditor group has included Barclays Plc and Bank of Ireland Group Plc, along with hedge funds Alcentra and Silver Point Capital.
The company rejected Ashley’s offer to underwrite 200 million pounds of new funding even after the billionaire boosted the proposal by 50 million pounds and asked lenders to write off a smaller amount of debt. His plan was contingent on being named chief executive officer, a requirement that has been a stumbling block for lenders in the past.
Debenhams previously rebuffed other Ashley proposals, including offers to extend loans, to buy the company’s Danish stores and to underwrite a shareholder rights issue. He had also floated the idea of a possible purchase of Debenhams’s equity.
“While Sports Direct has made a number of highly conditional proposals, each of which was fully considered by the Plc board, none were deemed deliverable given conditionality, timing and other stakeholder obligations and considerations,” Debenhams said in Tuesday’s statement.
Board ousters
Ashley led an ouster of Debenhams’s chairman and CEO from the board earlier this year and last month called for a special shareholder meeting to remove other directors. Debenhams said Tuesday that this meeting will not go ahead.
Talks became heated in recent weeks, with Ashley calling for the board to take lie-detector tests and for the company’s advisers to be “ put in prison.” The retail magnate also vowed to expose what he said was an insider plot to steer the company into the hands of hedge funds.
A prepackaged administration doesn’t require shareholder approval and allows a company to keep operating without risk to jobs or pension holders. It was used by lenders to U.K. government contractor Interserve Plc last month after U.S. hedge fund Coltrane Asset Management, a major shareholder, resisted a debt plan.
The game isn’t necessarily over for Ashley, who bought rival store chain House of Fraser out of administration last year also owns Newcastle United soccer club. The sale process to repay Debenhams’s debt may still allow him to gain control.
“It is likely that Mike Ashley’s pursuit of a controlling stake in the business is far from over,” said Simon Underwood, business recovery partner at accountancy firm Menzies LLP. “Now Debenhams is in administration, we will have to wait and see who the bidders turn out to be.”