Sports Direct has accused Debenhams of putting out “deliberately misleading” statements in the latest strike in its battle against the department store’s board.
In a letter sent to the department store chain the night before it issued a profits warning on 5 March, Sports Direct criticised the Debenhams board for changing its view only a few weeks after publishing a statement that the company was “on track to deliver current year profits in line with market expectations”.
The letter claimed that “the board [of Debenhams] and chief executive have no place leading a plc or in making public statements to the market” as its 10 January statement had proved “at best impossibly optimistic or at worst deliberately misleading” given that it soon after put out a profits warning despite an improvement in sales performance.
Sports Direct, which owns nearly 30% of Debenhams and was informed of the imminent warning on 4 March, suggested that the majority of shareholders’ interests were being undermined by “continued misleading public statements, and cloak and dagger actions in the refinancing process”.
Sports Direct is trying to turf out all but one of the group’s directors and install Mike Ashley, its founder and chief executive, as CEO.
Ashley has gone to war with Debenhams since it rejected his offer of a £40m loan before Christmas and turned to its existing lenders to borrow the money instead.
The company saw the proffered loan, and Ashley’s subsequent actions including ousting its former chairman, as an effort to win control of its business on the cheap.
The Sports Direct boss has made no secret of his desire to bring Debenhams closer together with House of Fraser, the department store he bought out of administration last year.
In 4 March letter to the Debenhams board, which was seen by the Guardian on Wednesday, Sports Direct said that “as a key stakeholder” it did not support the behaviour of the group’s management.
“Although we desperately want a sustainable future for the company we just do not see this being achievable with the current course of action,” the letter said.
Debenhams said in a statement on Wednesday: “We reject these unfounded and self-serving complaints. Debenhams’ board has taken advice at every stage in order to ensure that its announcements have been consistent with the disclosure requirements. The company is seeking to execute a much-needed restructuring – in the interests of all stakeholders – while its biggest shareholder tries to undermine the process at every turn.”
The company has partly blamed financing costs for its profit warning while the battle with Sports Direct has rattled suppliers, causing them to demand more upfront payments. Uncertainty about Debenhams’ future has also affected shoppers so that fewer people have bought expensive, and profitable, items such as sofas online fearing that they may never be delivered.
But Sports Direct questioned whether “fiduciary duties are being carried out” by the Debenhams board as it said the company was paying a “huge” rate of interest of 5% above the interest rate benchmark on its £40m loan from the banks.
The letter provides an insight into the toxic relationship that has developed between the two sides, revealing that Sports Direct reported Debenhams to the UK Listing Authority and the financial services regulator after being given a preview of the planned profit warning.
Ashley got an early sight of the profit warning as part of limited financial information from Debenhams that he has been receiving since signing a non-disclosure agreement several weeks ago as the company’s board attempted to draw him into its rescue bid.
Debenhams is attempting to refinance £520m of debts that are due to expire next year. It has also taken out a £40m short-term overdraft and said this week that it was in talks to increase that to £150m in order to keep the business afloat for the rest of this year.