Debenhams rallies as Sports Direct buys House of Fraser

Debenhams was on the rise on Friday as Sports Direct - which has a 30% stake in the department store chain - announced the acquisition of House of Fraser.

Sports Direct said in a statement that it has agreed to buy House of Fraser from its administrators for £90m in cash.

Chief executive Mike Ashley said: "This is a massive step forward and further enhances our strategy of elevation across the Group. This will benefit both House of Fraser and Flannels in the luxury sector. We will do our best to keep as many stores open as possible. It is vital that we restore the right level of ongoing relationships with the luxury brands. Our deal was conservative, consistent and simple. My ambition is to transform House of Fraser into the Harrods of the High Street."

Commenting earlier on reports that Sports Direct was nearing a deal to buy HoF, Neil Wilson, chief market analyst at Markets.com, said: "This would be an exciting development for the retail sector as it could effectively consolidate the two troubled department store chains into a single offering. This appears the only viable solution; combining the operations to reduce overheads and stop competing against each other after a pretty brutal period of sales that has hammered margins."

But Chris Beauchamp, chief market analyst at IG, said: "Without root and branch reform, such a combination merely postpones the inevitable."

Back in July, Sports Direct posted a big drop in annual profits as it took an £85m hit from its Debenhams stake. The retailer said pre-tax profit fell to £77.5m in the year to 29 April, from £281.6m the year before.

At 1605 BST, Debenhams shares were up 1.4% to 11.68p, while Sports Direct was down 0.2% to 406p.