Retail Giant Debenhams At Risk Of Going Into Administration

Debenhams store in London for Kat Von D's Beauty UK launch
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U.K. retailer Debenhams is at risk of going into administration after rejecting an offer from Sports Direct CEO Mike Ashley. A report from the BBC said the offer was put in place to boost the department store by £200 million ($261.5 million). This is after a rejected offer of £150 million ($196 million) on Monday which would have made Ashley chief executive of the company.

While stores will still be trading as normal, the company is likely to come under the control of its lenders. However, the retailer has announced that it may have to close up to 50 stores, a five-fold increase on its original proposal in 2018 of only close 10 stores. These closures are expected to occur over a three- to five-year period and are likely to affect jobs.

According to the Evening Standard, the company is expected to fall into a pre-pack administration and has requested its shares be suspended as of Tuesday morning U.K. time. The retailer was issued with three profit warnings last year and is currently said to be in debt to the tune of £640 million ($836.6 million).

Under Sports Direct’s proposal, the company would have agreed to have £82 million ($107 million) of its total debt removed and to make Ashley its chief executive.

Debenhams in London on Boxing Day, 2014
  Ben A. Pruchnie / Getty Images

Senior analyst at Hargreaves Lansdown, Laith Khalaf, said that the company’s rejection of an overnight bid by Sports Direct shows that Debenhams “simply isn’t interested” in what is being offered to them.

The pre-pack administration will be put in place in order to protect shareholders and creditors and will wipe out Mike Ashely’s 30 percent share of the company, which cost around £150 million ($196 million).

The company has issued a statement on the matter.

“The board confirms that it received a revised, highly-conditional, proposal from Sports Direct in the early hours of 9 April, which indicated a willingness of Sports Direct to underwrite an equity issue of £200 million.”

They have also said that they anticipate a “further announcement during the course of the day.”

Debenhams has been in business since 1778. Founded in London by William Debenham, the retailer employs nearly 25,000 people at 165 stores across the U.K. The company has yet to release a list of which branches will be closing down.

Sports Direct now owns the company and are continuing to analyze a takeover, said to be priced at five pence per share. However, Mike Ashley demanded the company’s board of directors be investigated and said to The Guardian that there may be a chance “Debenhams shares will end the day with a price tag of zero.”