Sports Direct has bought House of Fraser out of administration for £90 million, just hours after the department store announced its collapse as last-ditch talks to save it failed.
In a stock market announcement, the Mike Ashley-owned Sports Direct said it has acquired all of the UK stores of House of Fraser, the brand and all of the stock in the business.
The news raises hopes for House of Fraser’s 17,000 staff members, who are now being informed that they will become part of the Sports Direct group.
The deal was struck through a pre-pack administration process, where a company is put into administration before a new buyer cherry picks the best assets.
A pre-pack administration deal also means new buyer can leave behind liabilities, such as pension schemes.
- 17,000 jobs at risk as House of Fraser falls into administration
- Creditors could determine House of Fraser’s fate today
- House of Fraser rejects rescue bid for 31 stores set for closure
- House of Fraser settles landlords’ legal challenge
- Pensions watchdog keeping tabs on House of Fraser
- Hamleys owner pulls out of “inadvisable” House of Fraser deal
- Moody’s judges House of Fraser to be in “technical default” on loans
Ashley – who owned an 11 per cent stake in House of Fraser before today’s deal – beat off competition from rival Philip Day, the billionaire owner of the Edinburgh Woollen Mill Group.
Turnaround specialsts Alteri Investors also reportedly put forward an offer.
According to various reports, Day’s proposal was over £100 million and would have avoided an administration and included House of Fraser’s pension scheme.
Retail Week also indicated that sources close to Day had complained of feeling “frozen out” of proceedings after his representives put together his bid for the heritage department store.
However, auditing firm EY, which was appointed administrators for House of Fraser this morning, chose the offer from Ashley’s Sports Direct instead.
The full details of what Sports Direct will do with House of Fraser is not yet clear, including whether it would implement the CVA that creditors approved back in June.
The CVA features plans to close down 31 of House of Fraser’s 59 stores, rents reductions on 10 stores that will remain open, a relocation of offices, and 6000 job cuts.
However, sources speaking to Press Association said Ashley planned to convert some House of Fraser stores into Sports Direct and rebrand others under the Flannels fascia.
Ashley’s acquisition of House of Fraser finally realises his long term ambition to own a department store.
The controversial billionaire already has a 29 per cent stake in Debenhams, just a few percentage points shy of launching a takeover bid.
He also has interests in Goals Soccer Centres and French Connection.
House of Fraser’s rescue deal comes amid a time of crisis for the 169-year old retailer.
Last weekend, it settled a legal dispute with landlords who sought to challenge its CVA.
It was thought that the result of the legal challenge would have paved way for the department store to secure the new funding it urgently needed to pay for quarterly rent bills, concession suppliers and Christmas stock.
Chinese investment firm C.banner, also the owner of toy retailer Hamleys, had also promised an investment of £70 million for House of Fraser, which was conditional on the implementation of its CVA.
Additionally, House of Fraser’s former majority owner Nanjing Cenbest had signed a memorandum of understanding that C.banner would purchase a 51 per cent stake in the department store after the CVA process was complete.
However, C.banner withdrew its planned cash injection in late July, just days after it said it would delay it until October due to the landlords’ legal action.
C.banner’s withdrawal also came a day after influential credit ratings agency Moody’s judged House of Fraser to be in technical default on its loans, downgrading it from the “very high risk” rating it received in December.
Earlier this week, City AM revealed that the department store had rejected an offer from Paul McKie to take on the 31 stores set for closure in January 2019 as part of its CVA.
McKie was understood to have offered between £30,000 and £50,000 per store for the leases and rent obligations from September.
Like other retailers, House of Fraser has been dragged by soaring costs and dwindling consumer spending.
It also saw its business rates bills rise £3.99 million to £30.24 million this year due to a government revaluation, according to research group Altus.