Shares in Debenhams have been rising since Mike Ashley’s deal to buy fellow department store chain House of Fraser was completed on Friday of last week.
The deal has sparked speculation that Ashley, who already owns close to 30% of Debenhams shares, may be considering a deal to merge the two businesses. Shares in Debenhams have tanked by 62% this year, after it issued a number of profit warnings, and were trading at 11.92p when the House of Fraser deal was announced on Friday. Today trading closed at 13.82p, having been as high as 14.41p during the day.
Ashley has been slowing increasing his stake in Debenhams in recent years and in March took his holding to 29.7%, just beneath the 30% threshold at which he would be required by the Stock Market to make a mandatory takeover offer. Back in 2014 Sports Direct acquired a 4.63% stake in Debenhams and by March 2017 that stake had reached 13% and it has been growing steadily ever since.
At the time the stake reached 29.7%, Sports Direct said it saw a number of synergies between the sports chain and the department store. However the purchase of House of Fraser has led to suggestions that an imminent merger of the two department store chains could be on the cards, with some industry watchers believing that a consolidation of costs would be beneficial to the struggling businesses.
There had been some speculation that Philip Day, owner of Edinburgh Woollen Mill among other brands, who lost out to Ashley in the race to buy House of Fraser, may go into battle with him again to buy Debenhams but that appears to be unfounded.
Equally Ashley has his hands full with the House of Fraser acquisition and implementing his planned rescue of up to 47 of its 59 stores, so may not be ready to make any move for Debenhams just yet.
The retail tycoon has hit a hurdle with logistics supplier XPO, which fulfils online orders and store deliveries. The supplier has downed tools and refused to fulfil online orders in a dispute over debts that were racked up under the chain’s previous owners. As a result, House of Fraser has had to take its website offline until the matter can be resolved.
Given Ashley acquired House of Fraser in a pre-pack deal, debts for unsecured creditors from prior to the period it was placed briefly into administration last Friday, have been all but wiped out. While Ashley is not legally required to pay these debts, some (including losing bidder Philip Day) believe he should agree to pay a proportion of them to remain on good terms with all of the store’s suppliers, who are in total owed around £70m.