When is the right time to look at Debenhams?

Wednesday, 27th March 2019 12:34 - by Rajan Dhall

I recently wrote about Debenhams on the LSE blog (http://www.lse.co.uk/blogs/expert/rajan-dhall/w2hy8g79t5qw17a/) and low and behold Mike Ashley put in a bid for the Co. 

Previously the High St. mogul offered to fund the company when they were in need of a loan but Debenhams found the funding elsewhere on more favourable terms. It seems now the 30% shareholder has bid GBP 61.4mln to take control but word is that it may only be accepted of Ashley himself becomes the CEO.  Sports Direct also stated that Debenhams must terminate the noteholder consent solicitation agreement, referring to the plan to seek permission from the bondholders for a GBP 200mln cash injection.

Debenhams had previously warned that the restructuring options that it may introduce once the cash injection comes through, such as a debt-for-equity swap or a pre-pack administration process, would wipe out existing shareholders such as the Sports direct owner.

Looking at the chart now it seems price stalled at the key resistance level pointed out in the last blog post (4.60p). The share price printed above this level but we would need a firm close above to indicate any potential move higher. One of the main setbacks for the Co. has been the cost of the rent/leases on the properties. If Mike Ashley comes in he would have massive negotiating power as he now owns Sports Direct, House of Fraser and potentially Debenhams.  In the event that the deal is confirmed and the rate negotiation we may see a move higher here but the economy of scale would still point to a significant saving. Lastly, I have mentioned before that the UK government are considering a online tax to help the High St. if this comes into force it could be another plus point but in total things are still bearish on the sector. 

The Writer's views are their own, not a representation of London South East's. No advice is inferred or given. If you require financial advice, please seek an Independent Financial Adviser.