Sports Direct, the sportswear chain controlled by Mike Ashley, has swooped on House of Fraser in a £90m rescue deal that secures 17,000 jobs for the time being.
In a statement to the Stock Exchange, Sports Direct confirmed it had bought the retailer for £90m in cash, shortly after it fell into administration on Friday morning. Ashley said he intended to turn the chain into “the Harrods of the high street” and pledged to keep as many stores open as possible.
The statement added: “The group has acquired all of the UK stores of House of Fraser, the House of Fraser brand and all of the stock in the business.”
The chain was put into administration after talks with its creditors, which went on until 3am in the morning, failed to provide a better option. Suppliers who were due to be paid about £60m next week are not expecting to recoup more than 3p in the £1 of what they are owed.
All 59 House of Fraser stores will come under Sports Direct’s control and all 17,000 staff are being transferred on the same employment terms and conditions. However, Ashley’s plans for the business are not clear and it may be that some stores close in the future.
The retailer’s previous owner, Nanjing Cenbest, part of China’s Sanpower conglomerate, had planned to close 31 of the stores using a company voluntary arrangement (CVA), an insolvency procedure, but that deal lapsed when the 169-year-old House of Fraser business crashed into administration.
Ashley, whose business empire also includes Newcastle United, a US sports business and a luxury London property development, has long wanted to take control of House of Fraser. He bought an 11% stake in 2014, when 89% of the business was sold to Sanpower in a deal worth £480m.
The Sports Direct founder has considered buying a department store chain for several years. He also has a 29.7% stake in House of Fraser’s rival Debenhams.
The addition of House of Fraser to the Sports Direct group will create a new force in high street retailing. Sports Direct also owns the famous London sportswear store Lillywhites and Flannels, a designer fashion chain.
Ashley has owned the once-upmarket Lillywhites, in London’s Piccadilly Circus, since 2002 but on his watch it has switched to the discount formula favoured by the Sports Direct stores.
The 24-store Flannels chain, which sells brands such as Mulberry, Versace Jeans and Paul Smith, is more upmarket. As yet it is unclear which direction the Sports Direct tycoon plans to take House of Fraser but some analysts suggested there would also be potential to turn some stores into Sports Direct outlets.
Scott Lennon, a regional officer at Unite, said the union was worried about how the Sports Direct takeover would affect working conditions at the House of Fraser: “The staff are entering a period of great uncertainty and worry.”
A Guardian investigation in 2015 found that temporary workers at Sports Direct were effectively receiving hourly rates of pay below the minimum wage.
“Sports Direct is a leopard that has not changed its spots and we hope that its poor record on pay and employment practices are not transferred to the House of Fraser,” Lennon added. “Sports Direct’s record at the Shirebrook warehouse operation in the East Midlands has been dreadful and wages remain at the minimum legally payable, and the terms and employment conditions are threadbare.”
House of Fraser has been scrabbling to find a new buyer since the start of this month when C.banner, the Hong Kong-listed owner of Hamleys, pulled out of a commitment to invest £70m in the business.
The loss-making chain has been struggling amid weak consumer confidence that has resulted in fewer shoppers visit the high street. Last year’s increase in business rates has also made running high street stores more expensive at a time when sales are moving online. Critics of the property tax argue that it gives online retailers such an Amazon an unfair advantage over traditional high street chains.
The case for a reform of business rates has been heightened by this year’s string of retail collapses. Toys R Us and the electronics chain Maplin have disappeared from the high street, taking thousands of jobs with them, while New Look, Mothercare, Poundworld and Carpetright have together closed down hundreds of stores.
Speaking on Friday, the chancellor, Philip Hammond, hinted at what has been billed as an “Amazon tax” to level the playing field between high street and online players.
“We want to make sure that the high street remains resilient and that … taxation is fair between businesses doing business the traditional way and those doing business online,” Hammond told Sky News.
“That requires us to renegotiate international tax treaties because many of the big online businesses are international companies,” he added. “The EU has been talking about a tax on online platform businesses, based on the value generated”.
Events have moved quickly at House of Fraser. On Thursday it told investors that it needed to raise new funds by no later than 20 August.
However, on Friday morning House of Fraser appointed the accountancy firm EY as administrators after last-ditch overnight talks with investors and creditors had “not concluded in a solvent solution”. By 10am, however, it had been confirmed that Sports Direct was the group’s new owner.
The speed of the deal surprised other potential bidders, including Philip Day, the owner of Edinburgh Woollen Mill, and the restructuring specialist Alteri, which had been asked to submit best offers this week as the group’s lenders considered their options.
A source close to Day claimed the entrepreneur was surprised to see Ashley clinch the deal as he had put forward a solvent proposal on Thursday and attempted to follow it up on Friday morning with a £100m offer. However, deal insiders countered: “There was only one bid on the table last night and there was no offer this morning.”
Alan Hudson, one of the joint administrators, described the attempt to find a new owner as a “race against time”.
Hudson said: “We are pleased that we have been able to successfully conclude a sale of the business in short timescales which preserves as many of the jobs of House of Frasers employees as possible.
“It was a challenging transaction to achieve in such a short period of time which will ensure continuity of the business and preserve the goodwill,” Hudson continued. “We hope that this will give the business the stable financial platform that it requires to flourish in the current retail environment.”
Richard Lim, the chief executive of Retail Economics, said: “This is a hugely ambitious move for Sports Direct. The combination of both businesses will yield some vital cost-saving synergies while it’s likely that some of the struggling House of Fraser sites will be rebranded to Sports Direct.”
He added: “This [department store] is a part of the industry that is under a huge amount of pressure. Turning around the business will not come easy.”