Billionaire businessman Mike Ashley left the City baffled last night about a highly complex derivatives deal that was revealed on one of the busiest days in the retail calendar.
As 10 high-street and online retailers revealed their Christmas trading results, Mr Ashley's Sports Direct announced it had sold a 4.6 per cent stake in the struggling department store Debenhams less than a week after buying the holding, netting a profit of around £4.5m.
Sports Direct said it was basically betting with a third party that Debenhams' shares will fall. The unknown third party believes the shares will fall further than Mr Ashley does.
Under the deal, Sports Direct is paid a fee for agreeing to buy the shares at a preset – and undisclosed – strike price in the future. If the share price falls below the strike price, it will buy a 6.7 per cent stake in Debenhams at the agreed price, or pay the cash difference between share and strike price. The maximum exposure – should Debenhams go bust – would be £64m. If its share price continues to rise, the deal is off and Sports Direct pockets the fee from the third party.
Few analysts could fathom the exact nature of the trade, while others said results a raft of other retailers were keeping them from getting to grips with the arrangement.
Some suggested the deal was "intentionally" complex in order to confuse the market, while others said Mr Ashley's love of gambling was in evidence. And independent retail analyst Nick Bubb said: "As if Super Thursday hasn't got enough information to absorb, [we have] a baffling shuffle in Mike Ashley's stake in Debenhams."
He suggested the deal could be used by Mr Ashley as a way of putting pressure on the Debenhams board to discuss his plans to start stocking Sports Direct fashion lines in the stores.
If the board refuses, the share price could suffer and Mr Ashley would end up with a significant stake in Debenhams, which could cause further difficulties for the business.
Despite the complexity of the transaction, it is understood Sports Direct and Debenhams' management teams continue to talk to each other. Although Mr Ashley is betting the shares will fall, the department store is willing to continue a dialogue. Shares in both companies fell on the news, with Debenhams down 1.6% at 81.9p and Sports Direct down 2.2% at 721p.
Debenhams has been struggling in the last year and issued a massive profit warning on New Year's Eve after recording a disastrous Christmas period.
Mr Ashley has failed to make his intentions clear over his plans for Debenhams, but he has looked at buying the department store rival House of Fraser in the past. He is also keen to expand his fashion brands including Republic, Flannels and USC, with Debenhams looking like a natural home.