Ashley Gives Weary Debenhams Shareholders a Glimpse of Hope

(Bloomberg) -- Billionaire retail magnate Mike Ashley is giving shareholders of Debenhams Plc something to cling on to.

The embattled U.K. department-store owner soared in London trading on Friday, defying a broad market selloff, after announcing that Ashley’s Sports Direct International Plc had increased its share of the voting rights to 27.6 percent from 21 percent, just below the 30 percent threshold that would trigger a mandatory takeover offer.

Debenhams is the most-shorted stock on the U.K.’s FTSE All Share Index, with bets on a fall accounting for 24.6 percent of shares outstanding, according to the latest data from IHS Markit. The stock has slumped 44 percent over the past year as sales were pummeled by a flight of customers to online retailers like Amazon.com Inc.

“Should Mr. Ashley bid, let us hope he can make for a brighter future for Debenhams,” Shore Capital analyst Clive Black said by email, adding that the firm’s real-estate structure and a possible need for “material capital investment” need to be tackled regardless of ownership.

Sports Direct has concessions within Debenhams stores, although it announced the closure of some outlets in October, citing a clash with plans for increasing its own locations. 

Sports Direct sees “huge value for both companies in a strategic partnership,” Liam Rowley, the head of strategic investments, said in a statement. Rowley sees “obvious synergies” in integrating the companies’ respective web operations as well as opportunities for greater collaboration in the U.K. and abroad.

Constructive Relationship

“Debenhams notes today’s announcement from Sports Direct, with whom we have an established and constructive relationship,” the company said by email. “We continue to pursue our Debenhams Redesigned strategy, a key part of which is partnerships with other brands.”

Retailers like Debenhams are being punished for failing to build viable digital businesses as store owners struggle with Brexit-fueled currency weakness and a shift in spending away from clothing.

The shares snapped two days of declines to trade up 3.4 percent at 28.78 pence as of 2:05 p.m. in London, paring year-to-date losses to 17 percent. Debenhams’ market capitalization has shrunk to about 350 million pounds ($483 million) after the shares lost almost two-thirds of their value in the last two years. Sports Direct has lost 12 percent of its value in that time, giving the Mansfield, England-based company a market value of 1.9 billion pounds.

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