Following the news that Mike Ashley is considering a £61m bid to take full control of Debenhams,
Patrick O’Brien, UK Research Director at GlobalData, a leading data and analytics company, offers his view:
“While Mike Ashley’s desire to buy Debenhams and merge it with House of Fraser is clear, his talk of a £61m offer, without actually making one, is hard to take too seriously.
“The proposed 5p a share would represent more than double the price Debenhams shares were trading at yesterday, but would also involve the taking on of over £500m of debt and over £4bn in lease liabilities, so hardly a cheap way of supercharging his plans to create a Harrods of the high street. We do not believe that he would make a formal offer unless he was sure there was a way to avoid being on the hook for all of it – there are ‘change of control’ clauses in Debenhams debts that would make them immediately repayable.
“Having already offered £100m cash for its Danish chain Magasin Du Nord, which, like this possible offer, is conditional on Mike Ashley becoming CEO and the immediate halting of the refinancing program. Ashley is hellbent on derailing the debt-for-equity swap which would destroy his chance to create a ‘House of Debenhams’, and further moves are to be expected.
“Shares are up 50% today in reaction to the possible offer, but bearing in mind that the default position from Debenhams would wipe out shareholders, investors building a position are taking a high stakes gamble.”