Sports Direct boss scores with acquisition of stake in House of Fraser

The 165-year-old department store chain joins Debenhams in Mike Ashley's retail empire

Mike Ashley's Sports Direct is buying a stake in House of Fraser, marking its second foray into department stores this year as the Newcastle United owner cultivates his huge UK shopping empire, The Independent on Sunday has learnt.

The sports firm, which recently bought a stake in Debenhams, is buying House of Fraser shares owned by private equity firm West Coast Capital, which was founded by Mr Ashley's friend and business associate Sir Tom Hunter. The majority stake in the 165-year-old chain of department stores has been sold to Chinese buyer Sanpower, which now controls 88.9 per cent of the business.

Mr Ashley is taking on the 11.1 per cent stake, thought to be valued at about £50m, through Sports Direct. He and Sir Tom have form in doing deals, with Sports Direct buying majority stakes in Sir Tom's Cruise and USC retail chains in 2011.

Mr Ashley, who owns 62 per cent of the 600-store Sports Direct Group, has been eyeing House of Fraser for two years. But industry observers assumed he had walked away from a deal when the sports firm took a 4.6 per cent stake in Debenhams in January. He subsequently entered into a complex deal to sell his shares but retain rights over them, and will end up with a near 7 per cent stake next year if the share price falls below the level at which he bought them.

Eric Musgrave, editorial director at fashion and retail magazine Drapers, said: "If true, this is an excellent move for Ashley. Firstly, if [Sanpower] decides to eventually sell, Ashley will be in a good place to acquire the larger stake. Secondly, if it does work out it is useful for Ashley to have contact with a major retail force in China which would be advantageous to Ashley's aspirations in the region. This is another smart Ashley move."

The sale of House of Fraser has been long and drawn out. The chain, which has 62 stores, has previously held talks with French retailer Galeries Lafayette, before it considered listing on the London stock exchange later this summer. However, the deal with Sanpower became the preferred option and is thought to have been signed on Friday. The sale has been viewed as a coup for investors.

House of Fraser was first listed on the stock market in 1948, and remained a public company until it was bought by Mohamed al-Fayed in 1985. Mr Fayed then listed the business again in 1994 when he split off and retained Harrods, which had been part of the group.

In 2006, Icelandic businessman Jon Asgeir Johannesson's Baugur Group took the chain private in a £350m deal. His empire collapsed after the 2008 crisis, with many businesses falling into the hands of Icelandic banks.

Sir Tom's spokesman said he did not wish to comment. Sports Direct also declined to comment.

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