JD Sports eyes Debenhams takeover - report

Shares in JD Sports were on the back foot on Tuesday after it was reported that the sportswear retailer was mulling a possible takeover of stricken department store chain Debenhams.

According to The Times, the blue chip has entered exclusive talks with FRP, Debenhams’ administrator, and advisors Lazard, and is interested in acquiring the entire business. Neither Debenhams nor JD Sports commented on the report.

Debenhams went into a "light-touch" administration in April, which allowed it to continue trading as it cut costs and renegotiated leases. At the same time it liquidated its 11 Irish stores with the loss of around 1,450 jobs.

Like many retailers, Debenhams was rocked by the Covid-19 pandemic and the first national lockdown, which closed all its stores. But the chain - which has debts of around £600m - has long been struggling.

It was listed on the London market until last April, when it rejected a controversial and increasingly acrimonious takeover attempt by retail tycoon Mike Ashley. It was instead taken over by its lenders, including hedge funds Silver Point Capital and GoldenTree, before entering a company voluntary arrangement.

In April 2020, it then entered its current administration arrangement with FRP, despite shutting several unprofitable stores, before appointing Lazard to manage a potential sale process in August.

Debenhams now operates from 124 shops and employs around 12,000 people, although management want to reduce that further, to around 100 outlets. It has been hit by a long-term trend, exacerbated by the pandemic, of consumers favouring online over in-store shopping. But its website remains popular.

The Times said JD Sports - which is run by veteran retailer Peter Cowgill - was attracted to Debenhams because of the successful website, along with the opportunity to acquire prime high street locations for a knock-down price.

Greg Lawless, analyst at Shore Capital, said: "It is appropriate that JD Sports looks at opportunistic corporate developments in the wider UK retail market. There could be significant synergies over time, for example, property costs, by relocating standalone JD Sports inside the larger Debenhams store footprints in prime city centres.

"Debenhams would be a substantial bolt-on acquisition, and [JD Sports] would probably need to retain some existing Debenhams management to executive its recovery strategy. We foresee a smaller Debenhams footprint - maybe around 40-50 stores - and ownership by a well-respected retailer like JD Sports would pile further pressure on the beleaguered John Lewis department stores."

Mike Ashley had a £150m stake in Debenhams but it was wiped in last year’s debt-for-equity swap. His Frasers Group - formerly Sports Direct and the owner of rival department chain House of Fraser - was knocked out of the current sale process earlier this month after failing to meet the £300m price target being sought by the chain’s advisors, The Times said.

Lawless said: "We know that Frasers Group has been interested in acquiring Debenhams…and wonder if there might be a bidding war. Peter Cowgill and Mike Ashley appear to have a somewhat competitive commercial relationship."

As at 1215 GMT, shares in JD Sports were off 6% at 765.20p. Frasers Group’s shares were down 2% at 464.8p.