Mike Ashley moves in mysterious ways but one can surely say this about his “possible” takeover bid for Debenhams: it’s probably not going to happen if it would involve Sports Direct becoming fully liable for Debenhams’ debts, portions of which are trading at 50p in the pound. Ashley is not running a charity for impoverished banks and bondholders.
Unfortunately for him, it’s hard to see a way around the £560m debt obstacle. In a victorious bid conducted under Takeover Panel rules, the acquired business arrives with all its borrowings. Since Debs says all its debts have “change of control” clauses, meaning lenders can demand immediate repayment by a new owner, Ashley would inherit a towering problem.
His side mutters about the potential to refinance at lower interest rates. Well, yes, there would be scope to save a few quid because Sports Direct, which made top-line profits of £306m last year, is plainly more creditworthy than Debs, which makes next to nothing. But, unless he can persuade Debs’ bankers to write off some of their IOUs (how?), Ashley would still improve the lenders’ position massively via a takeover. Why would he do that?
He would achieve his ambition of owning Debs outright, of course, but the strategy looks self-defeating because of the size of the debts. Sports Direct itself had borrowings of £500m at the last count. Adding Debs’ load to that collection would push the financial metrics into uncomfortable territory.
Maybe it’s a gamble Ashley is prepared to take. But the natural reading of his latest manoeuvre is also the most plausible: the “possible” offer is an exercise in distraction. Debs’ beleaguered board, working on its debt-for-equity rescue plan, should carry on as if nothing has changed.
Hangin’ tough
Aviva would like shareholders to think its remuneration committee finally got tough last year. Look at those executive bonuses fall – most of the crew received only about half their possible maximums. And, look, there were even across-the-board deductions for the “disappointing episode”, as chairman Sir Adrian Montague coyly put it, in which Aviva caused a riot among preference shareholders after announcing (and then abandoning) a redemption plan that was condemned as sneaky.
But there’s another way to read the report. How was the former chief executive Mark Wilson deemed sufficiently successful during 2018 to deserve a £692,000 bonus for his nine months of work? Remember, he departed last October when a disgruntled board wanted new leadership, and wanted it immediately.
Shareholders may fairly view any bonus for Wilson as bizarre in the circumstances. If he was so good that he deserved more than his £1m-a-year salary, why get rid of him? If, in fact, he had become the wrong person for the job, and had annoyed everybody by taking a part-time (and well-paid) gig on the board of BlackRock, why pay him extra?
Aviva’s remuneration chair, Patricia Cross, didn’t address such obvious questions in her report, even in a year in which the shares fell by a quarter. But perhaps we know why. Bonuses are not viewed as rewards for exceptional achievement, which is how the rest of the world understands the concept. They have instead become semi-contractual payments, calculated under a formula that always spits out something, even when the boss has left the building. Among other sins, the bonus system is an abuse of language.
You got it
Another day, another partnership deal for Ocado. This time it’s Coles, the dominant supermarket force in Australia, that wants to operate a couple of Ocado’s automated distribution centres. All votes of confidence from third parties count but it’s notable here that Coles has signed after the fire in Ocado’s state-of-the-art warehouse in Andover in Hampshire.
The robots weren’t to blame for the fire, Ocado has maintained, and it looks as if the Australians, who presumably did their due diligence, agree. Ocado’s shares are up 25% since the fire – an impressive turnaround.
