Sports Direct buys 4.63% stake in Debenhams

Sports retailer owned by Mike Ashley states 56.8m shares purchased with aim for firms to co-operate and 'create value'

Sports Direct informed the City it had bought 56.8m Debenhams shares without the knowledge of the department store group’s board. Photograph: Rui Vieira/PA

Sports Direct has said it has bought almost 5% of Debenhams and that it wants to work with the company "to create value".

The sports retailer, founded by the Newcastle United FC owner, Mike Ashley, informed the City it had bought 56.8m Debenhams shares without the knowledge of the department store group's board.

Sports Direct bought the shares in the last week and told Debenhams on Friday. It said it had told Debenhams it wanted the companies to co-operate and that it intended to be a "supportive shareholder".

In a statement to the stock exchange, Sports Direct said: "Sports Direct wishes to explore options at an operational level to work together with Debenhams to create value in the interests of both Sports Direct's and Debenhams' shareholders."

Sports Direct revealed the 4.63% stake under a requirement to declare an interest of more than 3% in the shares of another listed company. Debenhams shares jumped 7% on Friday.

Debenhams shares tumbled after the company published a profit warning on 31 December and its finance director quit two days later. It said sales had been hit by aggressive discounting in the runup to Christmas, though other retailers blamed Debenhams for starting the price war.

The department store group's shares had risen 5.6% to 86p by 9am on Monday while Sports Direct shares were little changed at 756p.

Sports Direct is best known for its chain of discount stores selling trainers and other sports and leisure wear. But it also owns the fashion chains USC and Republic, high-end clothing outfitters Cruise and Flannels and non-sports brands such as Firetrap. Ashley has considered buying House of Fraser, another department store chain, in the past.

Ashley has a record of buying stakes in other companies and putting pressure on the management, including his former rival JJB Sports and Black Leisure. Late last year he threatened to buy 5% of Adidas after the sporting goods company refused to let Sports Direct stock Chelsea FC kits.

Sports Direct declined to say how the companies could work together, leaving industry analysts to speculate about its plans.

The veteran retail analyst Nick Bubb said the news cleared up why Debenhams shares had soared 7% on Friday, adding: "No doubt Mike Ashley has some ideas on how to trade from Debenhams' surplus store space and he has some experience of making big-space retailing work. Dragging Debenhams downmarket and turning it into even more of a discount store may not appeal to retail purists."

The Cantor Fitzgerald analyst Freddie George said the stake in Debenhams was a distraction for Sports Direct and that Ashley's interest did not yet mean Debenhams was "in play" as a takeover target.

"This would imply to us that the company [Sports Direct] is potentially considering splitting the fashion assortment from the sports ranges in its stores over the medium term."

Debenhams said: "Debenhams is open-minded with regard to exploring operational opportunities to improve its performance, alongside its own existing and planned initiatives, in order to create value for all Debenhams shareholders."