LONDON (Alliance News) - Sports Direct International PLC Thursday said it has entered into a put option agreement to acquire a 0.28% stake in Tesco PLC, a move that continues a record of the sports goods retailer or its founder Mike Ashley taking stakes, or options to buy stakes, in struggling retailers.
Sports Direct said its maximum exposure under the put option is limited to around GBP43 million. The 0.28% stake represents a total of 23 million Tesco shares.
"This investment reflects Sports Direct's growing relationship with Tesco and belief in Tesco's long-term future," the company said in a statement.
The news comes just days after Tesco, the UK's biggest supermarket chain, saw GBP2 billion wiped off its market capitalisation after it said it had overstated its first-half pretax profit guidance by GBP250 million. A day later it brought in new Chief Financial Officer Alan Stewart more than two months ahead of schedule.
On Monday, Tesco cut its outlook and suspended four executives while it undertakes a thorough investigation into the profit overstatement.
Sports Direct, the UK's biggest sporting goods retailer by revenue, has bought up a number of stakes in other UK retailers this year. It bought stakes in department store chains Debenhams PLC and House of Fraser earlier in the year, and most recently in online sales retailer MySale Group PLC.
Sports Direct sold the stake it bought in struggling department store operator Debenhams just three days after acquiring the stake, and replaced it with what was effectively a bet that the Debenhams share price would fall further. It entered into an option agreement that will activate if Debenhams shares fall below a certain level in the future. Its maximum exposure to that option is about GBP64 million.
This was just days after Debenhams reported that it had a dire Christmas period, with Chief Financial Officer Simon Herrick resigning just days after the retailer issued a profit warning and ceased its share buyback, citing heavy discounting behind a drop in profits.
By Rowena Harris-Doughty; rowenaharrisdoughty@alliancenews.com; @rharrisdoughty
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