Mike Ashley’s Sports Direct this weekend accused House of Fraser of financial incompetence and of hatching plans in secret.
The sportswear chain, which is a major shareholder with an 11.1 per cent stake, says it has been ‘frozen out’ and ‘repeatedly denied information’ about the struggling department store group’s financial state and its plans for the future.
Sports Direct, which this weekend launched a legal action to force House of Fraser to reveal its strategy, also laid into the chain’s bosses for letting their shops fall into ‘severe financial difficulties’.
Vitriol: Mike Ashley’s Sports Direct raged at House of Fraser’s owners
House of Fraser’s largest shareholder is Chinese firm Sanpower. Last week the British store group announced a plan to raise new investment from a second Chinese firm, C.banner, which owns the Hamleys toy shop in London.
But that deal will involve shutting down stores. Retail analysts said it could be as many as 20 of its 59 sites with hundreds of job losses.
In a vitriolic statement released last night, Sports Direct rounded on House of Fraser for its ‘opaque arrangements’ with its Chinese shareholders. Sports Direct added that it has been ‘a long-term critic of House of Fraser’s strategy and management, which has left the group in severe financial difficulties, and ultimately led to the proposed restructuring.’
Liam Rowley, head of strategic investments at Sports Direct, said: ‘We have been frozen out by House of Fraser. Their dealings in China are opaque, and it is blatant that we have been unfairly prejudiced. We have no option other than litigation to protect the interests of Sports Direct and its shareholders.’
The legal papers, filed at the High Court on Friday, name the owners and directors of House of Fraser including chairman Frank Slevin, who is also chairman of Hamleys.
Sources close to the department store insisted it has been fully compliant and met with Sports Direct bosses several times this year. That is understood to have included a meeting between Sanpower’s billionaire chairman Yuan Yafei and Mike Ashley, who also owns football club Newcastle United.
Sports Direct separately owns 30 per cent of rival store Debenhams.
House of Fraser’s largest shareholder is Chinese firm Sanpower
House of Fraser’s lastest Chinese deal would give C.banner a majority 51 per cent stake but still leave Sanpower as ‘a significant minority shareholder’.
In order to go ahead with the planned store closures, it would have to trigger a Company Voluntary Arrangement, or CVA, which will have to be approved by a court. A CVA is a partial insolvency that will let it hand back the keys to stores it no longer wants, or else demand rent reductions. This process is expected to start next month.
The restructuring follows a number of similar business overhauls including at fashion chains New Look and Select, along with flooring company Carpetright.
Landlords are irked by House of Fraser’s closure plan. They said it was a mistake to announce the plan at the same time as heralding new investment. The British Property Federation said any support for the proposals would be granted ‘begrudgingly’.
Slevin said on Wednesday: ‘C.banner’s investment is a vote of confidence in our prospects. We also know that if we are to deliver a sustainable, long-term business then we need to make difficult decisions about our underperforming legacy stores.’
House of Fraser, founded in 1849 by two Glaswegian drapers, has a colourful history. Its former owners include Mohamed Al Fayed, who floated the business on the stock market ifor £484million in 1994.
It was bought in 2006 by Icelandic group Baugur. But three years later Baugur collapsed leaving the chain in the hands of Icelandic banks.
The majority of the business was sold to Yafei’s Sanpower group in 2014. But, in an unusual twist, Ashley at the same time acquired an 11 per cent stake from Sir Tom Hunter which the Scottish retail mogul had owned since the Baugur acquisition.