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Sports Direct buys House of Fraser

Mike Ashley's company has agreed to pay £90m in cash for the failing chain
August 13, 2018

Sports Direct (SPD) agreed to buy House of Fraser in a £90m cash deal just 82 minutes after the chain appointed administrators early on the morning of 10 August 2018. The group’s owner, Mike Ashley, had taken part in negotiations regarding the department store’s future but talks broke down.

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Details are still fairly thin on the ground, but it’s believed the agreed price includes the House of Fraser brand, all the stores and all of its stock. Analysts at Liberum called the deal "savvy" but admitted they were still seeking further clarity over the level of House of Fraser's debt, the split of leasehold and freehold property and House of Fraser's pension position. 

The high-street stalwart has found itself in dire straits after Chinese group C.banner – owner of toy store Hamleys – pulled out of plans to inject £70m following its own profit warning on 1 August 2018. Frankly, it’s been a terrible year: a disastrous Christmas trading period forced the group to ask landlords for a reduction in rent bills. It then entered a company voluntary arrangement (CVA) – a scheme that was legally challenged by some of its major landlords – before announcing plans to close 31 of its 59 stores.Mike Ashley has now said he aims to keep 80 per cent of House of Fraser stores open.

An official statement from Sports Direct claimed House of Fraser’s last set of accounts (up to the year ended 31 January 2017) showed £946m in gross assets and a net profit of £14.7m. Richard Lim, chief executive of analytic specialist Retail Economics, called the deal “a hugely ambitious move for Sports Direct”. He said that while the combination of both businesses would likely yield “some vital cost-saving synergies”, this “part of the [retail] industry is under a huge amount of pressure”. In his opinion, turning House of Fraser around “will not come easy”. Sports Direct will be forced to address some of House of Fraser’s biggest challenges, which include improving the online shopping experience and offering unique and in-demand products.

Mr Ashley already owns an 11 per cent stake in House of Fraser, which combined with his 29 per cent stake in rival company Debenhams (DEB) has prompted rumours that he will seek to combine the two businesses. Debenhams is having a difficult year, too: three profit warnings in six months have led many to think that bosses will be forced to cut the dividend to preserve cash.