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Debenhams Warms to Ashley After Billionaire Steps Up Bid

Debenhams Plc cracked open the door to billionaire Mike Ashley for the first time, saying it’s considering his bid to increase control over the U.K. retailer and install himself as chief executive officer.

The billionaire’s Sports Direct International Plc late Wednesday offered a loan of 150 million pounds ($199 million) to the troubled department-store chain in a deal that would boost Ashley’s stake to 35 percent from 30 percent. The move was aimed at heading off a debt restructuring that Debenhams is negotiating with creditors.

“The board will give careful consideration to the proposal and will engage with Sports Direct and other stakeholders regarding its feasibility in the interests of all parties,” Debenhams said Thursday.

The retailer’s shares rose as much as 3.7 percent early Thursday in London.

Debenhams until now has stood firm against Ashley, the colorful owner of the Newcastle United soccer club, turning down a previous loan offer in December that was aimed at preempting talks with existing creditors. A debt restructuring would cause further losses on his equity investment in the retailer, whose shares have fallen more than 80 percent over the past 12 months.

Under Ashley’s new offer for unsecured lending, the retailer could use 40 million pounds ($53 million) to pay off a bridge loan and use the rest for general working capital, Sports Direct said. If Debenhams independent shareholders approved the deal to issue new shares and boost Ashley’s stake, the loan would be interest-free.

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Creditor Approval

The 150 million-pound proposal matches the loan that Debenhams has said it’s negotiating with creditors. Ashley’s offer is subject to approval by them, the retailer said. If the deal is approved, Ashley would become CEO of the company and join its board.

Ashley’s latest offer escalates his quest for control over Debenhams, after he triggered a call for a general meeting of shareholders in an attempt to oust almost the entire board on March 7. Creditors were said to have rebuffed his bid to take over immediately as CEO before last week’s announcement. The billionaire previously orchestrated the removal of the retailer’s chairman Ian Cheshire and CEO Sergio Bucher from the board.

Debenhams, an anchor of Britain’s shopping streets, has issued four profit warnings over fourteen months and is contending with a challenging U.K. retail climate, Brexit uncertainty and fierce competition from online retailers like Inc. Ashley last year took over rival department-store chain House of Fraser after it initiated insolvency procedures.

Debenhams has said restructuring options include a debt-for-equity swap, a shareholder rights issue or a so-called company voluntary arrangement, under which troubled U.K. retailers can seek rent reductions and close stores.

The store chain turned down Ashley’s 40 million-pound ($53 million) loan offer in December, saying it came with conditions that might have affected other stakeholders’ interests.

Reporting by Ellen Milligan.