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Maverick bosses are guests on the stock market. Guests, like fish, always stink after a while. The point is illustrated by Mike Ashley, founder and majority shareholder in Sports Direct. After nine years on the main list, he still hasn’t adjusted to its disciplines, as illustrated by a “clarification” on earnings that looks rather like a profits warning. It’s time for him to take the sportswear retailer private.
City investors aren’t tolerant of entrepreneurs. That’s bad for the funding of enterprise. But Mr Ashley has always been at the outer edge of what is acceptable and sometimes seems to delight in goading critics. He has made big public bets on the shares of other retailers via Sports Direct or personally. He has sought hefty incentives, which he has then declined.
Governance is unconventional. Mr Ashley combines a 55 per cent stake with the weird title “deputy executive chairman”, usually only borne by superfluous bosses due to leave after a merger. Chairman Keith Hellawell is an ex-copper with little prior corporate experience.
Shareholders typically hold their noses and count the profits when idiosyncratic bosses are doing well. But the explosive growth enjoyed by Sports Direct in the first half of this decade has started slowing. The shares have recently been knocked by criticism of employment practices at the group’s Shirebrook warehouse.
Mr Ashley refused to descend into the bear pit of a hearing to answer MPs’ questions, a duty Stuart Gulliver of HSBC and News International’s Rupert Murdoch have not shirked.
Instead, in a bungled interview with The Times at Shirebrook, Mr Ashley said: “We are in trouble, we are not trading very well”. The shares plunged 10.6 per cent on Tuesday. This forced Sports Direct to issue a statement on Wednesday warning that full-year earnings before nasties would be at the bottom of a range of £380m-£420m forecast in January.
You can debate whether an interview with a single internet-empowered journo spreads price-sensitive information widely enough. But it is clear Sports Direct is maturing. And erratic managers are harder for investors to put up with in mature businesses than fast-growing ones.
Investors cannot vote Mr Ashley out. They have to hope he is disgruntled enough to buy them out at a decent price and has the resources to do so. His private fortune is estimated at £400m. He could move debt to the group’s strong balance sheet after a deal. It would cost him well over £1bn. Divorce is never cheap. It is usually a relief for both sides, all the same.
Perhaps the little-known businessmen who took over BHS are not lightweights after all. Creditors have backed their survival plan for the troubled retailer. It is questionable whether the chain will ever make it back into the black. But this is a step in the right direction.
Store owners could suffer rent cuts of up to 75 per cent. The sweetener is the chance to reclaim properties. Some will do so, given that BHS’s tired outlets can drive little footfall. BHS has not asked for rent reductions for stores it does not wish to lose. Incentives were carefully balanced to achieve a Yes vote. By cutting the rent roll, BHS raises its chances of short-term survival. The group should now find it easier to raise a £60m loan.
A recovery will be harder to achieve. Shops are tatty and clothing lines dowdy. Department stores have fallen from fashion. The group remains locked in negotiations with pensions regulators over a £571m deficit.
Retail entrepreneur Sir Philip Green sold BHS for £1 last year to a consortium whose members include Dominic Chappell, an ex-racing driver and former bankrupt. The move rid the Topshop owner of a business that had splurged red ink for years.
One has to wonder how likely it is that Team Chappell can fix BHS when a retailer as skilled as Sir Philip threw in the towel. Regulators are therefore right to seek hefty support from the entrepreneur for the retirement fund.
Don’t be a noodle
Most company directors confronted with a takeover approach at a 88 per cent premium to a depressed share price would mutely hold their hands out for the money, tears of gratitude bedewing their cheeks.
Not Premier Foods. The owner of such heritage brands as Ambrosia and Bovril has rejected a 60p a share approach from McCormick of the US. It cheekily says this undervalues the enterprise value, most of which is the dragging anchor of £590m in net debt.
But that means the proportionate cost to McCormick of raising its bid to 70p would not be ruinous, representing a takeout at around eight times EV to forecast earnings.
Premier, which is talking up a tie-in with Japanese noodle titan Nissin, should not overplay its hand. Takeover interest, unlike most of Premier’s food, can have a short expiry date.