Debenhams "disappointed" at Mike Ashley move to oust board

News that Sports Direct chief and retail billionaire Mike Ashley wants to oust almost the entire Debenhams board to run the struggling department store himself shook UK retail late Thursday and the Debenhams response on Friday means this could turn into a big fight. 


Debenhams


The reply doesn’t give any explicit indication as to whether the board will roll over and go quietly or will put up a spirited fight, although its apparently-very-tame statement hints at the latter.

On Friday morning, the company issued a statement saying: “The board of Debenhams received notice from Sports Direct last night requisitioning a general meeting of shareholders to propose the appointment of Mr Mike Ashley to the board of directors of Debenhams and the removal of all of the current members of the Debenhams board (other than Rachel Osborne who became a director in September 2018). 

“Any shareholder holding more than 5% of the issued share capital has the right to call a shareholder meeting.

“The board has been engaging with Sports Direct and our other stakeholders regarding options to restructure our balance sheet and is disappointed that Sports Direct has taken this action. In the meantime, discussions to address our future funding requirements are well advanced.”

As we said, an apparently tame statement but one that shows the board's determination to carry on as it has been. The big question, though. is whether it will be able to carry on.

Ashley holds almost 30% of Debenhams shares through Sports Direct and has seen the value of his investment tanking in recent periods. Earlier this decade, Debenhams share were worth £2 each, but they’ve fallen steadily in the past half-decade leading some shareholders, like Ashley, to buy in to the firm when the shares cost 50p or less in the hope that it could mount a turnaround and prove to be a worthwhile investment. But its turnaround remains a very slow process and there are fears it could run out of time (and cash) before it’s complete.

Those fears have driven the share price down even further, making the once-mighty Debenhams into a ‘penny stock’. A year ago, its shares still cost 27p each, but at Thursday’s close they were changing hands for just over 3p a share, giving the firm a lowly market capitalisation of only a little over £37 million.

That share price reflects the lack of progress investors have seen. The firm’s update this week may have suggested that its decline has slowed but it also hinted that digital growth is proving harder to come by and this appears to have been the last straw for Ashley.

What the existing Debenhams board needs to do now is to win over other shareholders to its view that it has a future, although that might be a tough task with Ashley holding such a large stake and other shareholders potentially siding with him. However, those holding its shares aren’t the end of the story and the views of its lenders also have to be taken into account. The company is currently working to refinance £520m in debt facilities that are due to be repaid next year and with a debt load that large compared to its market cap, what its lenders think can’t be ignored.

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