Fight for Debenhams Escalates as Ashley Clashes With Lenders

(Bloomberg) -- Debenhams Plc said it’s seeking 200 million pounds ($262 million) of new funding under a creditor plan that could wipe out shareholders including billionaire Mike Ashley. His counteroffer to take control of the struggling U.K. retailer was promptly rejected.

The latest back-and-forth between the troubled chain and its biggest shareholder prompted as much as a 62 percent plunge in the shares to 1.1 pence. They were trading at 1.8 pence at 12:30 p.m. in London.

A group of hedge fund and bank creditors and Ashley’s Sports Direct International Plc are vying for control of the department-store operator as it seeks to restructure about 560 million pounds of debt. Both parties had offered the company 150 million pounds of fresh money to keep it afloat, after lenders provided a 40 million-pound lifeline last month.

Debenhams started a process on Friday to get bondholder approval for new lending from its existing creditors by 5 p.m. on March 28, according to a statement. The company needs bondholders’ consent to access the new money, which would allow it to pursue restructuring options that include reducing current shareholders’ equity value to zero.

Ashley’s Sports Direct responded with an offer to buy Debenhams’ Danish operations for 100 million pounds. Under the plan, the retailer would have a 12-month option to buy back its Magasin du Nord stores at the same price and Ashley would become director and chief executive officer at Debenhams.

‘Workable Solutions’

“As with all other proposals received to date from Sports Direct, it does not address the company’s funding and restructuring requirement, while balancing the interests of all stakeholders,” Debenhams said in a statement. Sports Direct has “repeatedly ignored” guidance from Debenhams on what would be “workable solutions,” it said.

“Magasin is an important part of any lending proposition and therefore any broader solution that protects value for the group,” the statement added. “There are obvious concerns with the proposal that Mike Ashley becomes CEO of Debenhams given that Sports Direct owns our direct competitor House of Fraser.”

Ashley bought House of Fraser out of administration last year and his bid to run Debenhams has fueled speculation that he’s looking to merge the two rival chains.

Ashley is stepping up his campaign for Debenhams as his roughly 30 percent stake in the retailer looks increasingly at risk of being wiped out. Sports Direct has already called for a shareholder vote “as soon as possible” in which Ashley seeks to appoint himself to the board and remove all current members other than Chief Financial Officer Rachel Osborne.

He has threatened to expose what he says is an insider plot to hand the company to hedge funds in an effort he’s dubbed “Project Serpico.” In January he led a successful ouster of Debenhams’ chairman and chief executive officer from the board.

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