Sports Direct says Debenhams has rejected £150m equity offer as pre-pack administration looms

Sports Direct has said that Debenhams spurned a £150m equity offer from Mike Ashley, in a sign that the embattled retailer is inching closer towards a pre-pack administration.

Read more: Debenhams shares slump as shareholders risk losing everything

In a statement this afternoon Sports Direct said that the department store chain, which is set to hand ownership to lenders, has rejected Ashley’s proposal to underwrite £150m of new equity funding in return for becoming chief executive.

The retailer's share price plunged 17 per cent on the news.

The firm said: "Sports Direct is disappointed with Debenhams' response. Sports Direct believes that, in the continued absence of any such engagement from the board of Debenhams and Debenhams' lenders, there is a likely significant and negative impact on Debenhams' current shareholders and other stakeholders, including suppliers and employees. Sports Direct therefore calls upon the board of Debenhams and its lenders to actively engage in negotiations."

It added: "Notwithstanding Debenhams' rejection of Sports Direct's proposal in relation to the Equity Issuance, Sports Direct continues to actively evaluate all possible options to support Debenhams.

"Accordingly, Sports Direct continues to give active consideration to its pre-conditional possible offer for Debenhams at 5p in cash per ordinary share announced on 25 March 2019." Sports Direct has until 5.00pm on 22 April 2019 to announce either a firm intention to make an offer for Debenhams or that it does not intend to make an offer."

Read more: Sports Direct confirms £150m Debenhams equity offer

David Madden, a market analyst at CMC Markets, said: "Debenhams shares had a rocky ride today. In early trading, the stock rallied after Mike Ashley – who owns a 30% stake in the company, offered to underwrite the firm’s £150 million rights issue. A short while ago, it was announced that Debenhams rejected the offer from Mr Ashley, and that caused a severe sell-off in the stock. The struggling retail might have to resort to a debt for equity swap with existing lenders, which might wipe out shareholder value."

On Friday night Sports Direct sent a letter to the board of Debenhams offering to underwrite £150m of new equity funding on the condition that its billionaire owner, Mike Ashley, is made chief executive of the struggling retailer.

The move came after Debenhams secured a £200m refinancing deal with lenders last week, in a move that would mean shareholders including Ashley, who owns nearly 30 per cent of the business, could see the value of their stakes wiped out.

Debenhams said that Sports Direct needed to make an offer, provide debt funding or underwrite a rights issue of new stock if it wanted to prevent creditors from taking control of the department store chain.