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Sports Direct shares remain firm as Mike Ashley pursues Debenhams

Mike Ashley, founder and chief executive of Sports Direct
Debenhams is intent on pursuing its debt-to-equity refinancing plans which will see existing shareholders almost completely diluted. But Sports Direct remains set on buying the struggling company to relieve it from its finance issues. Here’s why we think Sports Direct shareholders should be nervous.

Mike Ashley’s Sports Direct (LON: SPD) has its sights firmly set on Debenhams (LON: DEB). But the department store owner is not playing ball. For reasons that we cannot fathom, management is sticking firmly to its debt-for-equity refinancing plans which will see it raise £200m of new money from its current lenders. Shareholders who own the existing £27m company will be all but wiped out by the transaction.

That includes Sports Direct which currently owns just under a third of the struggling retailer. It hasn’t been a great investment – profits at Sports Direct were hammered in the financial year to April 2018 as its 30% stake in Debenhams lost £85m in value in one year. Since then, the department store’s share price has fallen another 90%.

Let’s back up to the root of the problem. Debenhams is trapped in whirlwind of woes including crushing debt, high capital expenditure, falling sales, narrowing margins and long-term property leases which makes it impossible to…

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