Mar 19, 2019
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Debenhams administration filing a possibility, say reports, major investor sells stake

Mar 19, 2019

Debenhams is reportedly considering a pre-pack administration filing, even though its refinancing attempts in order to avoid this are continuing. Meanwhile, its biggest shareholder wants to buy it if it falls into administration. And in the latest twist, the company has lost one of its other large shareholders with a major investor selling its entire stake.


Invesco Assent Management held almost 5% of the firm’s shares but has confirmed that it has sold its holding, giving no reason for the exit. That could be a sign that other shareholders might follow suit as a strategy of holding on and hoping that things would improve has clearly not worked. And with the threat of a possible administration filing, investors could be in danger of losing everything.

So will an administration filing happen? That’s still not a certainty and Debenhams hasn't even hinted that it's an option. But newspapers are full of speculation and if it does take place, it would be the second big-name British department store operator in a year to go into administration. It would really underline the changes that are happening in UK retail at present that have left traditional department stores weak and on the back foot as their business model proves less appealing.

If Debenhams went into administration, biggest shareholder Sports Direct would clearly be interested in acquiring the chain. Despite having said for a long time that its share purchases wouldn’t lead to a takeover approach, the declining position of the firm has led Sports Direct to take action recently, its CEO Mike Ashley voting to oust the department store’s chairman, to remove the Debenhams CEO from the board and even attempting a coup to put Ashley in charge of running the chain.

The FT reported that Sports Direct has admitted for the first time that it would seek to acquire Debenhams if an administration filing happened. Sports Direct exec Chris Wootton told the newspaper that while administration was “not the outcome we want”, it could happen, and as the firm’s biggest shareholder, Sports Direct “has informed Debenhams in writing that it considers itself the most logical and best-placed acquirer.”

Newspapers have said said that a pre-pack administration filing might happen but this could actually mean no role for Ashley. A pre-pack filing allows a company to file for administration but to be immediately sold in a pre-arranged deal, with many liabilities such as onerous leases being left behind. Given the huge size of Debenhams' debt, its lenders would have a a strong bargaining position if they were inclined to take over the company. Such a process would not need the approval of shareholders, although Ashley would clearly be unhappy and would be unlikely to take the situation and lying down.

Debenhams is continuing to talk to its lenders about a £150 million funding lifeline and if this comes through in time, it probably wouldn't need an administration filing. But with the situation still volatile, it would be a brave person who would place a bet on exactly what the eventual outcome will be.

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