UK department store retailer Debenhams Plc finally fell into administration today (9 April), passing almost immediately through a pre-pack sale process that has seen lenders take control of the group.
The move puts an end to the ongoing saga between the retailer and Mike Ashley’s Sports Direct business – and secures commercial relationships with suppliers, employees, pension holders and customers, the company says.
Fast-moving events this-morning saw Chad Griffin, Simon Kirkhope and Andrew Johnson of FTI Consulting LLP appointed as joint administrators of Debenhams Plc, who “immediately” sold all of plc’s ownership of the group to a newly incorporated company controlled by its secured lenders. The so-called pre-packaged sale is understood to wipe out shareholders, including retail tycoon Ashley’s Sports Direct, which had a stake of almost 30% in the company.
“The transaction delivers continuity for all group operations and was in the best interests of the group’s creditors, employees, customers, pension holders, and suppliers,” Debenhams said.
The lenders say provisions are in place to sell the group, but warned shareholders are likely to lose their investments: “At this stage we do not expect that there will be a distribution to the Plc’s shareholders.”
The underlying business has access to GBP200m in funding announced on 29 March.
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By GlobalDataIn addition, it will continue to implement an ongoing restructuring of its operations, but with a smaller store portfolio to reduce the group’s rent burden. This is a critical component of the group’s restructuring plan, and is in part linked to the provision of the GBP200m funds.
Trading in Debenhams’ shares has been suspended since 8am (GMT) this morning and will be cancelled with effect from 8am tomorrow.
“It is disappointing to reach a conclusion that will result in no value for our equity holders. However, this transaction will allow Debenhams to continue trading as normal; access the funding we need; and proceed with executing our turnaround plans, whilst deleveraging the group’s balance sheet,” Terry Duddy, Debenhams’ chairman, said. “We remain focused on protecting as many stores and jobs as possible, consistent with establishing a sustainable store portfolio in line with our previous guidance.
“In the meantime, our customers, colleagues, pension holders, suppliers and landlords can be reassured that Debenhams will now be able to move forward on a stable footing. I would like to thank them all for their recent and continuing support.”
“Outmanoeuvred by more nimble competitors”
“We should not understate the significance of this collapse given the vast property portfolio, number of jobs impacted and the reverberations felt across many high streets,” notes Richard Lim, chief executive, of Retail Economics.
“Debenhams has fallen victim to crippling levels of debt, which has paralysed its ability to pivot towards a more digital and experience-led retail model. Put simply, the business has been outmanoeuvred by more nimble competitors, failed to embrace change and was left with a tiring proposition. The industry is evolving fast and it paid the ultimate price.”
Sofie Willmott, senior retail analyst at GlobalData, concurs, noting plans to overhaul the retailer announced almost two years ago have been rolled out too slowly – and as a result most consumers have seen little change at Debenhams, other than a minor adjustment to its logo.
“Following weeks of bickering with Sports Direct, Debenhams has escaped the hands of Mike Ashley with any plans for a ‘House of Debenhams’ now firmly up in smoke,” she adds. “Given the changes to House of Fraser since its acquisition by Sports Direct in August 2018 with stores looking empty of both stock and shoppers, Debenhams has indeed been rescued by lenders – though store closures are inevitable. The business will still require significant investment to stand a chance of regaining consumer interest.”
Willmott adds: “With the majority of Debenhams’ sales generated from its clothing division, its competitors must be ready to take advantage and swoop in to capture the physical spend that Debenhams will miss out on.” The biggest beneficiaries are likely to be Next and Primark.
“Store closures would not bode well for the struggling Arcadia group, with many of its brands being present in Debenhams branches and the department store retailer being a significant contributor to the fashion group’s revenue,” Willmott concludes.
