Bad-tempered battle for Debenhams turns nasty amid executive fury

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The battle between Mike Ashley and the board of Debenhams was already ill-tempered.

Now, it’s become openly nasty.

He doesn’t like them, and they don’t like him.

Mr Ashley owns just under 30% of the company’s shares and has consistently criticised the store chain for misfiring.

Now, he’s announced that he thinks all but one of the Debenhams board should be fired from their jobs.

In his vision, only Rachel Osborne, the chief financial officer, would keep her position, while Mr Ashley would place himself in the role of Debenhams’ chief executive.

It would be the clear-out to end all clear-outs.

Publicly, Debenhams restricted itself to careful words about feeling “disappointed”.

Privately, its executives are furious, both with Mr Ashley’s plans, and also at the way he has gone about pursuing them.

It is no great secret that Debenhams is on the ropes, whacked by the same winds of change that have hit other retailers.

We shop more on the web now, which means the high property costs of department stores chains have become ever more burdensome.

Debenhams’ proposition has always seemed a little hazy – it is famously strong on cosmetics but that isn’t enough to sustain an entire department store.

It has relied too heavily on discounting, played catch-up on fashion, and it has long been held back by a debt burden left over by previous owners. Its online growth has been sluggish.

It is, in short, a company with serious problems.

That’s why Debenhams is in the midst of arranging new financing.

And that, I suspect, is why Mr Ashley has jumped into the breach.

That new deal is very likely to end up with a deal known as debt for equity.

What that means is that an organisation that is owed money by Debenhams agrees to write off some or all of that debt in exchange for a stake in the firm.

That, in turn, reduces the value of other people’s shares – Mr Ashley’s stake would be hugely diluted.

So it’s a safe assumption that he wants to protect that value by stopping that refinancing deal in its tracks.

But there’s more to this than just opportunism.

Mr Ashley holds true to the mantra of “pile it high, sell it cheap” that was first promoted by the Tesco founder Sir Jack Cohen.

But he adds to that though.

He is a master of cutting costs to the bone, securing supply lines, exploiting his own brands and managing expenditure.

One financier I spoke to said that Mr Ashley had a greater mastery of financial figures than anyone he’d ever met.

And he has iron-clad belief that the same principles can be applied to other high street retailers.

Mr Ashley bought House of Fraser and decided to bear down on costs and to stock more items that you could also buy in Sports Direct.

Will it work? We don’t yet know.

He’s bought the cycle chain Evans, the lingerie firm Agent Provocateur and put in bids for both HMV and Patisserie Valerie. Famous names that he thought were going cheap.

But his problem with Debenhams is that there is still plenty of life left in the board.

One insider told me that Mr Ashley would be resisted “with everything we have” and that he would not be allowed “to buy a great company by the back door”.

Plus there’s also the sticky problem of what the competition regulator would make of the same person controlling both Debenhams and House of Fraser.

On paper, that looks a non-starter, although Mr Ashley would presumably argue that his offer would keep alive two businesses that might otherwise go under.

He could, of course, buy a few more shares, take his stake above 30% and then be obliged to make a formal offer for the whole company.

But that would tie him to lots of formal oversight from the takeover panel, as well as a long process.

That isn’t his normal way of doing things – Mr Ashley is more of a tactical creature than a strategic player.

And so we wait.

The antipathy and vitriol is now clear.

The battle for Debenhams has begun.

(c) Sky News 2019: Bad-tempered battle for Debenhams turns nasty amid executive fury

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