Debenhams store

LONDON — Another British high-street retailer has fallen into the hands of administrators, following in the footsteps of House of Fraser, L.K. Bennett and Pretty Green.

Debenhams has confirmed on Tuesday that FTI Consulting has been appointed to carry out the administration process and will immediately sell the Debenhams Group’s two main operating companies to a new company owned by its lenders, which include U.S. hedge funds and high-street banks.

Under the new ownership, the company will have access to 200 million pounds of funding and has said that all “commercial relationships with employees, suppliers, pension holders and customers” remain unaffected.

However, Debenhams is continuing to restructure and is looking to shutter approximately 50 stores via an insolvency process, which will reduce its rent burden. The plan must be approved by landlords first, and further details are expected to be announced later this month.

Trading in the holding company’s shares was suspended as of 8 a.m. U.K. time on Tuesday and will be canceled as of April 10. This wipes out all shareholders’ stakes, including the shares owned by Sports Direct and House of Fraser owner Mike Ashley, whose takeover deal was rejected by Debenhams earlier this week.

“It is disappointing to reach a conclusion that will result in no value for our equity holders. However, this transaction will allow Debenhams to continue trading as normal; access the funding we need, and proceed with executing our turnaround plans whilst deleveraging the group’s balance sheet,” said Debenhams chairman Terry Duddy.

According to analysts, handing over Debenhams to its lenders instead of Ashley was the right move, yet it’s still unlikely that it will result in a successful turnaround.

“Given the changes to House of Fraser since its acquisition by Sports Direct in August 2018 with stores looking empty of both stock and shoppers, Debenhams has indeed been rescued by lenders — though store closures are inevitable. The business will still require significant investment to stand a chance of regaining consumer interest,” said Sofie Willmott, senior retail analyst at Global Data. “Although Sergio Bucher’s Redesigned strategy, announced almost two years ago, addresses the retailer’s problem areas, it has not been rolled out fast enough and as a result most consumers have seen little change at Debenhams, other than a minor adjustment to its logo.”

Ashley, who rescued department store House of Fraser out of administration last June, was prepared to underwrite a 150-million-pound rights issue that would instate him as chief executive officer of Debenhams. Earlier in the day, Ashley made a revised offer of 200 million pounds and after his offer was rejected, he criticized the regulators and asked for the administration process to be reversed.

During tense negotiations over the weekend, Ashley issued a statement accusing the board of Debenhams and its advisers of “a sustained program of falsehoods and denials,” and proposed for the retailer’s board members to take a lie-detector test.

Ashley claims that “misrepresentations were made to induce Sports Direct into signing a non-disclosure agreement, locking them out of any ability to trade in the bonds or equity of Debenhams for a period of time.” The non-disclosure agreement was signed in early February.

Debenhams has been struggling to keep up with the evolving, digital-first retail landscape. In fiscal 2017 to 2018, losses amounted to 491.5 million pounds compared with a 59 million pound profit in the previous year. The retailer issued three profit warnings in 2018 amid restructuring plans that included eliminating up to 200 head office jobs and cutting an additional 50 million pounds in costs.

Analysts added that closures and job cutts are likely to be accelerated under the new owners. This will affect the broader U.K. high-street eco-system, according to analysts. “With the majority of Debenhams’ sales generated from its clothing division, its competitors must be ready to take advantage and swoop in to capture the physical spend that Debenhams will miss out on,” added Willmott, pointing to Next and Primark as being best-positioned to take on the struggling retailer’s market share. Arcadia, on the other hand, is likely to suffer from the upcoming closures, as many of its brands are present across Debenhams locations.

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