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December 6, 2011 10:00 pm
Sports Direct, the company founded by Newcastle United owner Mike Ashley, has proposed a joint venture with struggling outdoor retailer Blacks Leisure which could give the business a greater chance of refinancing £40m of debt by reducing its cost burden.
The biggest shareholder in Blacks, with a 21 per cent stake, Sports Direct has proposed sharing its existing warehousing, supply chain and IT capability with Blacks, according to people familiar with the situation.
Offered as an alternative to Sports Direct supporting an equity raising, Blacks would pay Sports Direct a fee for running its back-end operations. This would be substantially less than the cost of Blacks running its own facilities, which are too large following a company voluntary agreement in 2009 when it shed 101 stores.
Blacks would continue to run the front end of its business and manage supplier relationships with premium outdoor clothing brands, which had previously expressed concern about the prospect of a Sports Direct-led takeover because of its reputation for discounting.
Two weeks ago shares in Blacks plunged 14 per cent in a single day after the retailer warned that full-year profits would be below expectations due to poor trading and “continuing downward pressure on consumer spending”. The retailer has been seeking £20m of fresh equity to revamp its 300 UK stores and convince lender Bank of Scotland (part of Lloyds Banking Group) to refinance its £40m banking facility before its February year end.
Although the potential cost savings could reduce the amount of equity Blacks needs to raise, it would not resolve its underlying balance sheet issues. Neither Blacks nor Sports Direct would comment on the discussions.
Sports Direct’s intentions will come as a surprise to many in the retail sector. After mounting a failed takeover bid for Blacks in 2010, Mr Ashley snubbed an equity raising last April. In light of the chain’s current difficulties, many retail analysts had believed Sports Direct would wait for Blacks to become insolvent, then try and pick up its assets through administration.
In August, Sports Direct used its influence to oust Blacks chairman David Bernstein, who resigned a week after incoming chief executive Julia Reynolds took up her post. Peter Williams, the former Selfridges chief executive and non-executive of online retailer Asos, was subsequently installed as non-executive chairman.
The Sports Direct board have been impressed by Ms Reynolds, a former Tesco director and chief executive of Figleaves.com, and believe she can turn round the chain, according to people close to the company.
Following a series of profit warnings, the Blacks share price has fallen over 90 per cent in the past year, leaving the retailer with a market capitalisation of just over £3m.
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