interesting post from someone27 Mar 2019 15:26
Possible takeover bid
Sports Direct announces today that it is considering a possible offer for Debenhams at 5p per share. Although note that it's highly conditional;
Sports Direct is also considering other options (not stated what these are)
The offer is likely to be 5p cash, but might be other forms (not stated, but I presume could be SPD shares, loan notes, or a mixture)
Previous announcements have also insisted that SPD wants to oust the Board of DEB, and have Mike Ashley take over.
The Possible Offer is pre-conditional upon Debenhams immediately appointing Mr Mike Ashley as its CEO and terminating the noteholder consent solicitation process it announced on 22 March 2019.
In addition, the Possible Offer is pre-conditional upon the Debenhams group agreeing not to enter into any third party funding arrangements (including those outlined in Debenhams statement of 22 March 2019), granting any new security over any of its assets or entering into any administration, CVA or other insolvency process.
Each of these pre-conditions must be satisfied or waived before any firm offer can be made.
My opinion - given that the DEB Board's restructuring proposals seem to indicate a wipe-out of existing shareholders, then accepting a 5p bid from Sports Direct is a complete no-brainer for shareholders. That's assuming that an actual bid appears (there isn't one yet). This could all be a ruse to topple the Board, who knows?
My view remains that DEB is not viable in its current form, due to its onerous leases, and declining LFL sales. How the carcass is divided up doesn't really interest me. With a high risk of a 100% loss on the shares, my stance remains, why get involved? Shareholders should pray that Mike Ashley's interest does turn into a 5p cash bid, as that's by far the best outcome out of the current possibilities.
It looks like a grudge match between Ashley, and the Board of DEB. Whether there is enough time to implement Ashley's proposals, is the big question mark. So risk of a 100% loss for shareholders still looks very high to me.
Hence risk:reward is not favourable, in my opinion, at the current c.3.5p per share. The upside is you make 1.5p profit on a cash bid from Sports Direct. The alternative is you lose 3.5p on the Board's refinancing (debt to equity probably, wiping out shareholders). Why risk 3.5p, just for a possible 1.5p profit? That doesn't make sense to me.
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