Jump to content

Debenhams / Mike Ashley

Recommended Posts

It seems likely to me that what will actually happen here is that Mike Ashley will bid, because aside from anything else, the House of Fraser is not of critical size without combining with Debenhams and is losing money heavily.  As Mr Ashley does not have access to enough luxury brands, so he is having to fill the House of Fraser stores with Sports Direct stock which is badly weakening the House of Fraser brand. He needs to combine Debenhams with the House of Fraser fairly urgently I would say, especially now that Debenhams has signed off the Li + Fung deal which promises a pipeline of decent quality items into its stores.

Equally, I believe he will use a mixture of Sports Direct shares and cash to make such a bid, this being far cheaper for him than using just his own cash or the supposed £1billion warchest he has accrued. It will also allow him to unify the purchase behind one corporate entity and use any tax advantages to the full.

It seems to me that this possibility is being ignored by many writers, yet it seems very likely. The issue of the £220m bondholders is to a degree a red herring in this. It is akin to the entry price to being involved in this bid, as the bond holders have to be paid back in full if he makes a bid, equally if an administration event happens, the bondholders are the first to become indemnified and will simply swap their £220m for equity in the new entity via the administrator. That means the bondholders have to be bought out automatically as a part of the cost of buying Debenhams. Why should Mike Ashely want then to allow Debenhams to go into administration? He would totally lose his equity stake and have to bid for the parts of the group he wants from the administrator in a queue with any other bidders, without preference. That may then be more costly to him that just paying the equity cost now of a bid – say £150m plus the bonds = £370m = bargain price. The banking facility can then be renegotiated afterwards or combined with Sports Directs facility, probably with the same banks, but at a fraction of the cost!

So then it is down to the cost of the equity – a takeover at these share price levels would be very cheap – probably around £100m – 150m plus £220m for the bonds, and plus say another £100m to stabilise Debenhams would mean that the total purchase would cost less than half Mike Ashley’s £1bn warchest. I’d say that would be a bargain for him for such an asset.

  • Like 1

Share this post


Link to post

It is clear Ashley wants Debenhams and it would illogical not to merge it with House of Fraser. While the Li & Fung deal will help supply luxury brands, Ashley's interest far precedes that deal and he does have other channels. Flannels, its 'luxury' outlet, is performing better than its core business. 

I don't rule out a bid and I agree a cash-and-share offer would offer benefits, including the ability to unify the businesses. But Ashley has waited for firms to fall into administration before and has said he would seek to buy Debenhams if it did collapse, even if it wasn't the "desired outcome". Read the FT article here (https://www.ft.com/content/0f985558-4836-11e9-bbc9-6917dce3dc62

I'd also reiterate that, as cheap as Debenhams is, some rightly question its long-term attractiveness. It relies on leasing property rather than owning it and operates a model that is struggling to keep up with the digital age. While the bondholders may be regarded as a 'red herring', don't forget one crucial advantage of letting Debenhams fail is the ability to renegotiate property leases and other key terms. If he bids, landlords and others are not obligated to negotiate in the same way they would under a CVA etc... 

Share this post


Link to post

Fair points Josh, but why would Mike Ashley let Debenhams go into administration? His 30% shareholding would become worthless and it cost £120m! That's a lot of money to recover. I do not think he'd be the only one looking to buy the company from the administrators either. There would be a queue, probably including Amazon [the stores would all make decent depots / large showcase shops], Li and Fung [they would surely want to protect this new co-operation and potential sales source] and so on. Even Philip Green could become involved. 

I look at the £120m Mr Ashley has spent so far, and it dawns on me, that if a pre-pack situation arose, he would be a real loser - the debt would be coverted into equity by the administrators as the bondholders would be at the top of the queue in such a situation. Those bondholders / banks would no doubt value Debenhams much higher than it is currently [as they are now doing with Interserve] meaning anyone wanting to buy them would have to pay through the nose. The cost could easily exceed the low amount you would have to bid currently in the open market for them. What's the point of that? Since Mr Ashley has already spent £120m, and needs to buy the bonds for a takeover, which in turn costs a further £220m, he might as well spend the further £120m for a formal bid and take over Debenhams via a conventional takeover bid. Any bid via the administrators following a prepack will probably cost him north of £200m and he can use Sports Direct shares in a takeover to cut the cost.

 

Share this post


Link to post

Of course the other reason why Mike Ashley is so interested is that he is trying to move upmarket. His son has also been pushing the business in this direction and the Flannels part is seen as a future leader within the current Sports Direct model. The problem is that the House of Fraser purchase has in hindsight been problematic and loss making. It is clearly not a critical size, and is probably unstable financially meaning it is taking up a lot of valuable management time and money. It urgently needs to be combined with a larger entity to give it critical mass. Debenhams does that, and it is waiting to be bought at this price. 

Once it concludes its replacement £150m banking facility with the lenders, and then declines Mr Ashley's loan offer, I imagine he will have to bid. Otherwise, House of Fraser will become more unstable, more loss making, and more of a pointless investment. 

Another key reason for buying Debenhams is also to gain access to its digital offer. Whilst only 20% of its sales are through the internet, that is on a par with the best in the sector such as Next, and the House of Fraser badly needs to compete or become part of that offer. This is a growing side of Debenhams.

Lastly, I take on board completely your comments about CVA's but you must admit the current Debenhams board are unusually relaxed about this issue. I do wonder if deals have already been done behind the scenes as no shopping mall will want to lose such anchor tenants as Debenhams?

Share this post


Link to post
Guest Mike Ashley to join

Well, now the Board are agreeing to let Mike Ashley come in and take over for a £150m loan, I guess we can expect a formal takeover from him shortly after that EGM as he will want to exert maximum control on the business. 

At least it will mean that staff's jobs should now be safer, I believe Mr Ashley will invest in the business and now will be able to move ahead with merging the House of Fraser with Debenhams. The back office synergies and deals with landlords should be sizeable.

Share this post


Link to post

The High Street is changing.

The UK seems to be following more US like - Out of Town retail parks and shopping villages. 

Online shopping is booming. The likes of Amazon, EBay and Co are all seriously denting the traditional and reputable stores like House of Fraser and Debenhams. We saw what happened to Woolworths, Toys R Us, etc. 

Online retail is the way the UK is going and it is the 'New Younger Generation' (NYG) that will decide the fate of any remaining department stores in the future.

Share this post


Link to post

Join the conversation

You are posting as a guest. If you have an account, sign in now to post with your account.
Note: Your post will require moderator approval before it will be visible.

Guest
You are posting as a guest. If you have an account, please sign in.
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.


  • Member Statistics

    • Total Topics
      6,938
    • Total Posts
      33,027
    • Total Members
      42,825
    Newest Member
    mziadawood
    Joined 26/06/19 12:22
  • Posts

    • On another thread which @cryptotraderstarted @wjw22 commented that Bitcoin is not money. Money is something that can be transferred or used in exchange for goods and services. Bitcoin (though not widely accepted - in fact miniscule acceptance at this stage compared to FIAT) can be exchanged for goods and services in certain places across the globe.  They then go on to state that Bitcoin is not a store of value. These are just words. Since Bitcoin's inception in 2009 if you invested £1000 of your hard money into both Bitcoin and Gold then Bitcoin would have proved to be the better store of value than Gold. This is even after numerous 70% to 80% corrections! Bitcoin is not only the best performing asset in the whole world in 2019 but it is the better store of value since its inception. If @wjw22 has any evidence to support otherwise then please do provide.  They then state Bitcoin is a Ponzi and a pyramid scheme. Again these are just words. The European Commission, UK Government and many large Government and corporations are looking at Cryptocurrencies and how it can be applied in certain jurisdictions across the globe. We are at a very early stage. These things take a lot of time. Evidence from a credible source needs to be provided to support such statements as otherwise they are just words which originate from bias, ego, stubbornness, etc.  @cryptotrader, in case why you are wondering why I am not responding to your thread, it is because I want to avoid any aggressive discussions and arguments. We all have different levels of understanding and experience in this area. We all read different literature and research papers on this area. We all have different levels of knowledge in this area. Another reason is because I have done what you have a year or two ago in either this thread or the Blockchain Trilogy thread, cannot remember and it is pointless unless there are balanced arguments presented with credible evidence from credible sources.  People first compared Bitcoin to the Tulip Mania. Now that it has blasted through that people are now comparing it to the Internet boom and bust. Why must we compare it to anything? The Bitcoin boom and bust and boom again could be new future being created without any copying of past historical incidents. Future performance does not have to be based on past historical performance. From time to time new history is created that is different from the past. Bitcoin is a new asset and a new revolution which will create a new history and a new future.  Now @cryptotrader your thread was about Bitcoin specifically based on your title. Not about Cryptocurrencies in general. Yes a lot of Cryptocurrencies are junk. If Bitcoin's store of value is laughable then its store of value performance in terms of protecting capital and increase the value of the capital is astonishing when compared to Gold in the same period of time since Bitcoin's inception. Someone is buying Bitcoin hence the price is going up. A normal person does not need buy one Bitcoin at $13000. They can buy a fraction of it using FIAT money. That is the beauty. Countries like China and Russia want to end the US Dollar being the Reserve Currency. It is unlikely that the world will go back to the Gold standard. In this coming 'Digital Revolution' Bitcoin is one of the favourite to be groomed as the worlds first digital reserve currency which is not linked to any one specific country like the US. During US-North Korea, Bitcoin went up more than Gold. During US-Iran tensions, Bitcoin went up more than Gold. Therefore times are changing. People and countries do not want to store their money in something which can be manipulated by central governments and priced in US Dollars. Times are changing and power is shifting from the west to the east and countries like Japan have embraced Cryptocurrencies. I respect the views of others but what tends to happen is that if someone is negative towards Bitcoin then they highlight the negative and do not offer a balanced argument. Likewise if someone is positive towards Bitcoin then they do not highlight the negatives. Even I am guilty of that. I accept there are negatives and flaws in Bitcoin and other Crypto's.  
    • @cryptotrader wrote (in Silver Bullet thread): "I've always thought that cryptos are completely unrelated to other asset types which is why they're so difficult to price. Everything else has the inter-connectivity between themselves (Fed IR effect USD 'value', which knocks on to USD denominated assets, which leads into equities, re-positioning etc) but always thought crypto is a world unto its own. Linked to cost of production - electricity, CPU costs etc." I think the notion that crypto is something apart from the rest of the financial world is a concept that pervaded the first internet boom; the idea that the internet was going to change the nature of business and society by providing free access to everything and there for traditional business models would fail.  Instead the first internet boom failed, well hardly surprising as all those budding entrepreneurs forgot that you have to make money by charging for goods or services to become a millionaire (although a few clearly did purely off the back of selling out early enough - which is a watch out now on crypto for anyone invested for the long term).  Out of the ashes rose the second internet (or tech) boom but interestingly the winners were those that effectively adopted traditional business models (i.e. the need to make profits and generate positive cashflows - duh!).  The share prices are now massively over inflated of course but that is just financial market forces (the markets can remain irrational longer than we can remain solvent, kind of thing) rather than anything intrinsically wrong with their business models.  Now that these businesses are profitable and hold masses of cash (masses!!!) they can withstand a major downturn, perhaps better than some other more traditional sectors, and be positioned well for the eventual recovery.  It is this recover where I think we will see the really discontinuous tech disruption, the next leap forward.  This is what happened after the first internet bubble burst.  It is after the crash and clear out that we will see Crypto, or rather the blockchain type technology, become mainstream in terms of replacing physical cash, this is the end game, not some nirvana of a non FIAT collective new age hippie dippy free of politics currency (or set of currencies) that everyone will use free of government control - you might as well just howl at the moon as think that is ever going to happen. As regards you comment about Crypto being apart, well how do you buy or invest in Crypto?  With cash of course.  And how it is currently "valued" in the markets?  In USD, hmm... The real problems at present for Crypto, and the reasons it will all end in tears until the next iteration are (for me): There are too many Cryptos, until it is mainstream (i.e. the tech backing electronic FIAT currency, which is the root of the concept of currency right back to the earliest days of non precious metal currency (i.e. the right to exchange a paper bill for gold) it is the wild west. Ordinary people are not using Crypto as a currency, it does not have wide adoption It will not get wide adoption until it is better understood and backed by something normal people recognise as sound (i.e. governments) There isn't sufficient liquidity for wide adoption and consequently the price of a bitcoin is too high for a normal person to use it (similar problem with Gold BTW, which is why I prefer Silver for true disaster insurance and consequently hold physical silver coins) The price is too high and too volatile, it is in the hands of speculators - hence it is a mania The idea that Crypto is a store of value is laughable.  When the $£!& hits the fan people will buy Gold and Silver and USD and Yen, things they understand and can cling to in an uncertain world.  They will not buy bitcoin.  Even if they wanted to how can any normal person buy bitcoin at $50,000 per coin?  Barking mad the whole thing - but this is what I expect at the end of the cycle so carry..!    
    • Unfortunately i am no longer able to continue giving these updates. Alas our fun journey ends here, my fingernails are intact @Caseynotes, lol I will be here still in the forums. Thanks all for your input. DJ  
×
×