Blacks steps nearer brink as Ashley pulls offer

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Mike Ashley's Sports Direct has ended its pursuit of Blacks Leisure, cutting off one possible escape route for the beleaguered outdoor retailer to safeguard its future.

Sports Direct had confirmed on Monday its interest in a possible takeover of the operator of the Blacks and Millets chains but yesterday said it had "decided not to proceed with an offer".

Investors in Sports Direct, which is the biggest shareholder in Blacks with 22.5 per cent, toasted the move, sending the sportswear giant's shares up by 20p, or 11 per cent, to 210p.

The outdoor retail chains Mountain Warehouse, Go Outdoors and Cotswold Outdoor are still thought to be interested in buying part, or all, of Blacks. The group, which has debts of £36m, put itself up for sale last week after shareholders and potential new investors refused to back a cash call. The group has invited first-round bids before Christmas, and is hoping to complete a transaction before the end of January. The company behind 98 Blacks outlets and 208 Millets stores has to refinance its debts by 3 March.

If Blacks cannot complete a straight sale, it may be forced to implement an insolvency procedure. One potential option would be for an interested party to buy Blacks out of a pre-packaged administration, which would allow them to take the business on after wiping out its debts. When it put itself up for sale last week, Blacks warned that shareholders could be wiped out. After Sports Direct's statement yesterday, shares in Blacks tumbled by 16.4 per cent to 1.9p, valuing it at only £1.6m. Blacks, which made a half-year loss £16m and warned on profits last month, narrowly avoided collapse in 2009.

Mr Ashley, the owner of Newcastle United football club, has aborted a number of potential takeovers for Blacks in recent years. In March last year, he walked away from a 62p-a-share offer amid reports that key suppliers to Blacks, such as North Face, did not want to work with the company he founded.