Debenhams has called on the competition watchdog to intervene in an attempted boardroom coup by the Sports Direct and House of Fraser boss Mike Ashley.
Shares in the ailing department store rose nearly 16% on Friday, or less than half a penny to 3.53p, after Ashley issued a shock stock market announcement calling a Debenhams shareholder meeting to oust nearly all the department store’s directors and install himself as chief executive.
It is understood that Debenhams has raised concerns with the Competition and Markets Authority (CMA) about the potential concentration of control in the hands of Ashley, whose Sports Direct empire owns House of Fraser and a near-30% stake in Debenhams. Half of Debenhams shoppers also shop in House of Fraser, which stocks 90% of the rival department store group’s beauty offering. Both stores also stock the same fashion brands including Phase Eight, Oasis, Ted Baker and Coast.
Jonathan Branton, a competition specialist at law firm DWF, said competition authorities could get involved even if Sports Direct did not launch a formal takeover bid for Debenhams. “If this looks like acquisition of control the CMA will want to have a look at it carefully under merger control rules,” he said.
The CMA declined to comment on whether it was looking at the matter.
Sports Direct, which owns nearly 30% of Debenhams, pledged that, if appointed to lead the department store, Ashley would step down from his role as chief executive of the sports and retail group which he founded and controls via a 61.5% stake.
The attempt at a boardroom coup comes after a series of attempts by Ashley to wrest control of Debenhams without launching a formal bid. His efforts have stepped up since buying department store House of Fraser out of administration in August last year.
Ashley is thought to have moved to oust the board via a shareholder vote after he met with Debenhams bondholders and was unable to persuade them to install him as chief executive.
One analyst who declined to be named, suggested that Ashley felt he had a “moment of leverage” as the Debenhams board attempts to finalise a refinancing deal with its lenders that might put it on a firmer footing.
Before the end of April, the company is attempting to refinance £520m in debt facilities, including £320m of loans and £200m of bonds, which are due to be repaid next year. A deal is expected to include a debt for equity swap and 50 store closures.
With uncertainty around the terms of the deal, Ashley is hoping to win over shareholders.
One analyst said: “The issue for Debenhams will be getting people out to vote. Whatever the current management team do to raise money is going to be highly dilutive to shareholders.”
To oust directors or put himself on the board, Ashley would need the support of 50% of voting shareholders. In January he was able to oust the Debenhams chairman Sir Ian Cheshire by teaming up with fellow shareholder Milestone Resources, controlled by the Dubai-based retail entrepreneur Micky Jagtiani, who owns a 7% stake.
Although they together own less than 40% of Debenhams’ stock, fewer than 70% of the company’s shareholders voted, which meant that Milestone and Sports Direct controlled more than half the voting stock.
One leading shareholder told the Guardian they were not minded to support Ashley unless he could come up with a credible refinancing plan of his own or made a bid for the company. “There’s nothing in between,” they said.
“There are operational issues at House of Fraser and governance concerns at Sports Direct and we would question why he isn’t just bidding for the shares,” the shareholder said.
But with about 20% of Debenhams’ voting stock held by small shareholders via investment platforms run by groups such as Hargreaves Lansdown which mean their votes often go unused, Ashley may not have to win many investors over to his plan.