Debenhams (DEB.L) shares collapsed to penny stock levels on Friday after the struggling department store warned that equity investors could be wiped out by radical rescue plans.
Debenhams said on Friday that it plans to raise £200m from its existing lenders to pursue a restructuring that would “secure the future of the business.”
“However, certain of these options – if they materialise – would result in no equity value for the company’s current shareholders,” the company said.
Debenhams shares fell by 48% to 1.5p after the announcement. Trading had to be halted as a result of the rapidly collapsing price.
“Management are seeking £200m from lenders and bondholders, which goes beyond the £150m it said it had been looking to raise,” said Neil Wilson, chief market analyst with Markets.com.
“Specifically the company has launched a consent solicitation for holders of its 5.25% bonds due in 2021. After the downbeat trading performance post-Christmas, it looks as though the company requires more cash than previously thought.”
Debenhams has put out four profit warnings in the last 18 months, the most recent in January. The company has net debt of £286m and debt facilities of £520m.
The emergency funding plan comes as Sports Direct founder Mike Ashley continues his campaign to take control of the struggling retailer.
In response to the Debenhams update, Sports Direct offered to acquire Debenhams’ Danish business Magasin Du Nord for £100m. Under the proposal, Debenhams would have a 12-month option to buy back Magasin Du Nord at the price at which it was sold to Sports Direct.
As part of the deal, Sports Direct again proposed that Ashley would become a director and the CEO of Debenhams to assist the firm through its restructuring process. Ashley owns 30% of Debenhams.
“Surely Ashley’s admittedly bitter medicine would be an easier pill to swallow?” Wilson said.
On Thursday, Ashley reiterated his call for a shareholder vote on his proposals, which would see all directors except finance boss Rachel Osborne, kicked out.
He has already ousted former chairman Sir Ian Cheshire from the company in January by teaming up with fellow shareholder Landmark to vote against his re-election. Chief executive Sergio Bucher was also removed as a director but has remained in his post for now.
Debenhams has been battling with the rapid shift of retailing from the high street to online. Department stores are struggling with high fixed costs that leave them unable to reduce outgoings as sales fall.
Rival department stores BHS and House of Fraser have both gone bust in recent years. Ashley bought House of Fraser out of administration last year.