Sports Direct ups holding in French Connection to 27pc

TWO activist investors who declared war on French Connection’s corporate governance have sold their entire stakes to Mike Ashley’s Sports Direct in a move that gives the sportswear giant a 27pc grip on the fashion retailer.

Gatemore, which held an 8pc stake in French Connection, and OTK, which owned 7pc, had joined forces to push for changes at the embattled fashion retailer. They had called for Stephen Marks, the founder, to step down and to explore a sale process.

Sports Direct seized an 11pc stake in French Connection in February, but the swoop on Gatemore and OTK’S shares takes Ashley’s business closer to the UK’S 30pc threshold to launch a takeover.

Sports Direct has built up a collection of stakes in other retailers including Debenhams, House of Fraser, Findel and Game Digital.

Gatemore told The Daily Telegraph that it had decided to sell out of French Connection because it was not satisfied with the pace of change at FCUK and had “decided not to ride out the investment during this period of uncertainty in the UK retail market”.

Following public pressure from the activists, French Connection accelerated its store closure programme to address its dwindling cash position and launched a process to find new nonexecutives. However, Mr Marks has refused to relinquish his dual chairman and chief executive role, in stark contravention of UK corporate governance guidelines.

French Connection, which has suffered five consecutive years of losses, was also hit by the departure of the highly respected former Next director Christos Angelides, who left his role as a non-executive director in May to run rival chain Reiss.

Liad Meidar, managing partner of Gatemore Capital Management, said that while his fund had made a 44pc return on its investment, he believed that “French Connection could have unlocked significantly more value during the period had it made more progress in fixing its corporate governance”.