Sports Direct acquires House of Fraser for £90m

Mike Ashley’s retail group has picked up the stricken department store business just hours after it was put into administration, in a deal that sees it take over the group’s full estate of 59 stores.

HoF’s management appointed EY as administrators this morning in a move that followed the collapse of takeover talks in late July with Chinese group C-banner. The group faces a £40m rent bill due before the end of August.

A statement issued to the London Stock Exchange this morning said: “Sports Direct International announces the acquisition of the business and assets of House of Fraser from the administrators of House of Fraser Ltd, House of Fraser (Stores) Ltd and James Beattie Ltd, the House of Fraser group’s main operating companies, for a cash consideration of £90m.

“The group has acquired all of the UK stores of House of Fraser, the House of Fraser brand and all of the stock in the business.”

Alan Hudson of EY, joint administrator, said: “We have worked very closely with management, its advisors and creditors in recent weeks and are pleased that we have been able to successfully conclude a sale of the business in short timescales which preserves as many of the jobs of House of Frasers employees as possible.

“It was a challenging transaction to achieve in such a short period of time which will ensure continuity of the business and preserve the goodwill. We hope that this will give the business the stable financial platform that it requires to flourish in the current retail environment.”

C.banner, owner of Hamleys, had been lined up to take over the business with a £50m-plus cash injection, a deal that had been predicated on a Company Voluntary Arrangement being agreed for a major store closure programme.

The CVA, which as well as 31 store closures included rent reductions at 10 further locations, was agreed in June, but was subsequently challenged by a cohort of landlords – although this challenge was soon settled by HoF, the dispute was cited by C.banner as a reason for backing away, with the group cancelling a share placing that might have funded the deal.

No announcement has been made as to what Sports Direct intends to do with an estate in which 31 locations have been earmarked for closure over the next six months, including stores in Altrincham, Birkenhead and Carlisle. The CVA could yet be implemented, but some reports have suggested that some HoF locations could be converted into Sports Direct stores.

House of Fraser chief executive Alex Williamson had this morning spoken of his confidence that the company’s future would be secured in short order, saying “an acquisition of the 169-year-old retail business will see House of Fraser regain stability, certainty and financial strength”.

For the year ended 28 January 2017 the House of Fraser group had gross assets of £946.3m and made £14.7m net profit.

Dr Gordon Fletcher of Salford Business School said: “This makes good business sense for Ashley. In administration, Ashley will be able to choose which parts of House of Fraser he wants and those parts he does not. This almost certainly will leave at least part of the pension fund in the hands of the Pension Protection Fund as well as the continued prospect of job losses but helps to keep the doors open at some House of Fraser locations including the iconic former Kendal’s site on Deansgate, Manchester. That is in a prime location and Ashley seems to want upmarket and inner-city locations.

“A takeover will see House of Fraser become part of a group that includes Sports Direct and 30% of Debenhams. The advantages brought by the warehouses and logistics already managed by this group will be an important key in the recovery of the House of Fraser’s fortunes. So House of Fraser may well survive but it might look a bit different under the new regime.”

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