Debenhams ‘considering’ £150m Sports Direct loan

● Department store in talks over sport retailer’s offer ● Deal would install Mike Ashley as new chief exec

Beleaguered retailer Debenhams has said it will give “careful consideration” to a £150 million loan proposal from Mike Ashley’s Sports Direct amid an escalating row between the pair.

Its response followed Sports Direct’s confirmation late on Wednesday that it had made an offer of a loan to the department store chain as part of an arrangement that would install Ashley as chief executive of the company.

Sports Direct also revealed on Wednesday that it had made a complaint to the City watchdog over communications from Debenhams.

In a letter written just days before Ashley launched an attempted coup to install himself on the Debenhams board, Sports Direct took issue with the retailer’s results statements, accusing the board of giving misleading communications. Debenhams branded the complaints “unfounded and self-serving”.

But in the latest twist of the saga, Debenhams confirmed it would look at the proposed loan. The department store chain said any loan would require the backing of current lenders and “material amendments” to existing facilities.

It added: “Nevertheless, the board will give careful consideration to the proposal and will engage with Sports Direct and other stakeholders regarding its feasibility in the interests of all parties.”

Under the terms of the offer, Debenhams shareholders would vote on whether to issue new shares to Sports Direct, taking its holding to 35 per cent. If this were approved, the loan would be interest-free, but without the share issue it would bear 3 per cent interest.

The loan would see Debenhams use £40m to pay down existing debt leaving the remaining £110m available for working capital.

It is the latest move in Ashley’s spending spree, after he bought House of Fraser and Evans Cycles last year, and has been linked to bids for Patisserie Valerie and HMV.

Sports Direct’s letter shared with media on Wednesday – which is dated 4 March, the day before Debenhams issued a profit warning to the market – claims that a previous trading statement in January was “at best impossibly optimistic or at worst deliberately misleading”.

In the trading statement in question, Debenhams noted it was “currently on track” to meet market expectations.

Eight weeks later, the retailer warned that its profits would be lower after a hit to sales in the 18 weeks to 5 January.

Sports Direct, which is the largest shareholder in Debenhams, was sent a copy of the profit warning the night before it was made public.

The company responded with a letter accusing Debenhams of being “misleading” by stating in January that it continued “to generate cash” despite ongoing discussions to refinance the business.