Sports Direct offered Debenhams a new loan worth £150 million in return for a further 5 per cent stake in the share capital. The credit offered was an interest-free loan and would let Mike Ashley, the founder of Sports Direct to take charge of the company. Ashley is a majority stakeholder in Sports Direct and is seeking to take charge of the departmental group. He wants to remove most of the board members and want himself in an executive position and is willing to resign from his position of chief executive at Sports Direct.
If the share issue is approved, then it would take Sports Direct’s holding to 35 per cent. The loan offered is an interest-free loan otherwise it would bear a 3 per cent rate of interest. By March 31, 2019 the agreement is assumed to be concluded in the statement to the stock exchange.
In the letter to the directors of Debenhams, the Sports Direct had shown concern about the deteriorating financial position that Debenhams was in and the potential adverse and unfair impact of the company entering into an additional secured facility on its unsecured creditors, its shareholders, its employees and pension schemes.
Sports Direct considers the proposal compelling and would like to meet the management team of the Debenhams and its main creditor groups. They have also requested the Debenhams not enter any rival proposal in the meantime. Whereas as per the Debenhams spokesperson that accepting the loan would require them to have the consent of other lenders and material amendments to existing credit facilities. Debenhams board will consider the proposal and will enter into the agreement with Sports Direct and other stakeholders if it’s feasible in the interests of all parties.
Debenhams is working on changing its capital structure as per most of the observers. The refinancing would comprise a debt for equity swap, a new share issue and possibly a voluntary arrangement to reduce lease obligations.
The Sports Direct offered loan after accusing the Debenhams of misleading the investors and had reported about its concerns to the regulatory authority. Sports Direct questioned the company’s communication policy and were dissatisfied with the transparency of its financial statements. They were not happy with the behaviour of the management team as it would hinder the company from achieving a sustainable future.
Recently in the shareholder meeting, Mike Ashley requested to dismiss the entire board of directors of Debenhams with exception to the finance director Rachel Osborne and install himself as chief executive.
In January, Mr Ashley voted with Mr Micky Jagtani of Landmark, the Dubai-based group to oust former chairman Ian Cheshire and Sergio Bucher, chief executive, from the board. Mr Bucher remains chief executive but is no longer a director.
The Departmental store has dropped all the accusations and had taken precautions at every stage to assure that its announcements had been at par with the disclosure requirements. The company will do much-needed restructuring in the interest of all its stakeholders.
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