Billionaire's Retail Brawl Spreads Some Damage

(Bloomberg Opinion) -- Mike Ashley is stepping up his battle against the board of Debenhams Plc.

His Sports Direct International Plc said late Thursday that it had called for a general meeting to appoint Ashley to the Debenhams board in an executive capacity, and remove all of the current members save Rachel Osborne, the finance director. Given that Ashley owns 30 percent of the department store’s shares, officials there will have to comply. If he carries the day, he would give up his executive responsibilities at Sports Direct.

Debenhams’ difficulties and missteps have got so bad it’s now working on a restructuring of the balance sheet, including possibly a debt for equity swap. While that could keep the business running, in a worst-case scenario Ashley could get completely wiped out.

The billionaire has already tried to protect his stake by becoming a debt investor, but the Debenhams board rebuffed his attempt at this in December, to their cost. So this is his second big attempt to gain some sway over the company.

This strategy has a good chance of succeeding. After all, he was able to draw on fellow Debenhams investor Landmark Capital to oust Chairman Ian Cheshire and remove Chief Executive Officer Sergio Bucher from the board. And with Debenhams shares trading at less than 4 pence, some of the other big shareholders might back him too.

Billionaire's Retail Brawl Spreads Some Damage

With a board seat, he has more chance of driving Debenhams in the direction he wants: combining it with his House of Fraser unit. 

That doesn’t mean this path will be plain sailing. To force through his agenda he needs backing from equity investors and debt holders alike. Perhaps one way to do this would be to assemble a quality board with retail experience. But corporate governance has never been Sports Direct’s strong point. Ashley may struggle to recruit suitable management.

As for investors in the sportswear chain, this new arrangement would be an unwelcome one. The company is already stretched thin: it parted company with previous CEO Dave Forsey in September 2016 and Ashley has been filling the void since. And having acquired House of Fraser last summer, the company has its work cut out trying to revive this ailing department store. It is also building its upmarket Flannels business as well as trying to revive Sports Direct’s core value sportswear arm.

Investors seem to have grasped the risks – the shares fell as much as 2.5 percent before recovering slightly.

Ashley, who holds 56.5 percent of Sports Direct, won’t be far from the retailer. Sports Direct has always been a Mike Ashley show. Having him around less, just at a time when the company's management responsibilities are piling up, is a worry. He would be replaced as CEO by deputy finance director Chris Wootton. He is not well known outside the company, and the remainder of the board is small.

Still, Ashley is often under-estimated – as Debenhams has already found to its cost. Officials there seem not to grasp that the department store is key to his strategy of combining a portfolio of stores and a range of brands that can slot into them.

This battle looks set to continue – potentially to the courts, according to Bloomberg Intelligence’s Louise Parker.

Expect more collateral damage along the way.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Andrea Felsted is a Bloomberg Opinion columnist covering the consumer and retail industries. She previously worked at the Financial Times.

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