Debenhams is on the brink of falling into the hands of its lenders in a move that will wipe out shareholders after the company and its financial backers rejected a £150m cash injection from Mike Ashley’s Sports Direct.
A pre-pack administration deal is expected to be announced on Tuesday morning that would affect Debenhams’ holding company only, meaning its 165 stores would continue to trade. However, shareholders’ stakes will be rendered worthless, including Sports Direct’s near 30% stake, which cost about £150m to build up.
The retailer’s banks and bondholders also want Debenhams to close about 50 stores via an insolvency process known as a company voluntary arrangement, which is likely to follow within weeks. Landlords will hold a vote on whether to approve the deal, expected to involve stores closing after Christmas and putting thousands of jobs at risk.
Sports Direct said Debenhams had turned down its offer of a £150m rescue package, in the form of a fully underwritten rights issue, in a deal it hoped would keep the company in the hands of shareholders. In a stock market announcement on Monday afternoon after that deal was rejected, Ashley’s retail group said it was still considering making a fully funded takeover bid instead, but no offer had emerged by a 5pm deadline.
With the deadline missed, the most likely outcome for the chain, which has 165 stores and employs 25,000 people, is that lenders will take control of Debenhams. They have lined up administrators to organise a pre-arranged deal under which Debenhams’ listed holding company will go into administration. The group’s operating companies, which run its stores, will then be sold to a new entity controlled by the lenders in return for reducing the group’s £640m debt pile.