By Karen Peattie
MIKE Ashley’s Frasers Group has resurrected its interest in the stricken Debenhams business, entering eleventh-hour talks to buy the UK department store chain after a potential rescue deal with JD Sports fell through last week.
Frasers Group confirmed that it is in negotiations with administrators regarding a potential rescue transaction for Debenhams’ UK operations but cautioned that speed is of the essence. A stock market note stated: “While Frasers Group hopes that a rescue package can be put in place and jobs saved, time is short and the position is further complicated by the recent administration of the Arcadia Group, Debenhams’ biggest concession holder.
“There is no certainty that any transaction will take place, particularly if discussions cannot be concluded swiftly.”
It is also understood that Mr Ashley is only interested in taking on about 30 stores out of the 242-year-old retailer’s 124-strong estate where some 12,000 people are employed. The Sports Direct founder and owner of House of Fraser previously held a near-third stake in Debenhams but was forced to write off his investment, worth about £150 million, when the business was put into administration last year.
He had also made an offer for Debenhams after it was initially put up for sale in April and has spoken often of his desire to acquire the business. His most recent offer, thought to be about £125m, was rejected, paving the way for JD Sports which pulled out of talks over its rescue deal for the retailer last week.
It was the last remaining bidder and it is understood that last week’s collapse of Sir Philip Green’s Arcadia group – the biggest concession operator in Debenhams and accounting for about five per cent of the retailer’s sales – contributed to its decision to pull out. Beleaguered Debenhams was struggling before Covid-19 but enforced closure during the pandemic and the big consumer shift to online shopping hastened its demise.
Debenhams had already closed stores this year and cut about 6,500 jobs as it restructured in an attempt to bolster its chances of survival. Frasers Group, meanwhile, has forecast growth and last month raised its stake in luxury brand Mulberry to 29.7%. In June, it nearly doubled its shareholding interest in German fashion house Hugo Boss.
Mr Ashley, the owner of Newcastle Football Club and a former Rangers Football Club shareholder, is a controversial figure in UK retail and has a reputation for swooping for ailing retailers.
Stockbroker Shore Capital said this latest bid could be his last change to own Debenhams and that “any potential deal would centre on the current and future stock position”.
Analysts said: “Any deal with Frasers would probably see a portfolio of Debenhams operated under a 12-month licence. We also wonder how many Debenhams stores that will survive long-term, alongside Frasers Group’s House of Fraser fascia. Many of the stores sit adjacent to each other.
“Frasers is known to be a hard negotiator and will probably walk away rather than overpay.”
Professor John Colley, associate dean of Warwick Business School and an expert in mergers and acquisitions, added that Mr Ashley “has learned the best way to buy a business is out of administration as there is no debt and all contracts can be renegotiated”. He said: “This is ideal as his real strength is negotiating efficient and low-cost supply chains.
“Administrations also mean the buyer can take the profitable parts and leave the rest. For Debenhams, Mike has waited for ‘last shout’ – that is the announcement of liquidation – to get the best deal. The good news is it is likely some stores and jobs will be retained."
Liquidators started clearing stock last week. There have been reports of Debenhams' website crashing with increased volumes of traffic from shoppers keen to snap up bargains.
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