For sale: Debenhams hunts for new owner

Debenhams is poised to draft in advisers to help secure its future in a move that could see the department store giant sold to new owners.

London investment bank Lazard will be appointed as soon as tomorrow to run the process and trigger talks with potential buyers.

The beleaguered chain’s lenders are examining ways to set Debenhams on a more stable footing after it called in administrators in April for the second time in a year.

A sale is one of a range of options on the table for the business, which also owns Danish department store Magasin du Nord. 

Other options include attracting new investors alongside existing backers or triggering a restructuring of the business known as a ‘company voluntary arrangement’ (CVA) – an insolvency mechanism that would mean creditors take a financial hit while aiming to nurse the firm back to health.

Sources said its existing backers wanted to reach a conclusion on the next steps over the coming weeks and have the process ‘done and dusted’ by the end of September.

‘Lazard will be working closely with the administrator to find a positive, solvent outcome that works for all the creditors and which would draw a line under the current situation,’ said one source.

The Mail on Sunday understands the plan has been mapped out in recent weeks with its principle creditors – US-based Silver Point Capital, Alcentra, GoldenTree and British bank Barclays – as well as the chain’s administrators at FRP.

Law firm Freshfields is also among the City firms understood to be advising on the process.

Sources suggested the September target is linked to a string of major decisions on clothing stock orders the firm’s buyers will be required to make in good time for January.

FRP has been running what the company has described as a ‘light touch’ administration but which has already seen its Irish stores placed in liquidation.

It is understood a liquidation of the main chain has not been ruled out if all other options are exhausted and the administrator deems that the best route to returning cash to creditors. But sources said there was no appetite among creditors for that at present and the preferred option would likely centre on a financial restructuring.

The chain opened 124 of its 142 stores last month when lockdown restrictions on shops began to ease in the UK five weeks ago.

Many high streets have reported a lacklustre response from shoppers. But it is understood sales at many Debenhams stores have performed better than had been expected.

Selling online could be another opportunity for any future owners of the business.

A Chinese consortium is believed to be among potential investors that have already emerged. But sources insisted it was still ‘very early in the process’ with Lazard yet to be officially appointed.

Other likely bidders for some or all of the chain will include billionaire Newcastle United owner Mike Ashley, who owns rival chain House of Fraser and discount sportswear retailer Sports Direct.

He clashed with previous management in his efforts to seize control of the business and tried to install himself on the company’s board in senior roles – including chairman and chief executive – on at least two occasions.

‘I am sure during this process Mike will appear in some way or another,’ one source commented on Ashley.

The chief executive of Next, Lord Wolfson, has also been eyeing some Debenhams sites in recent months.

Debenhams is currently not paying rent and is benefiting from the Government’s business rates holiday, which lasts until next April. It is understood that many of its head office staff are still furloughed.

Management have renegotiated many of the chain’s leases to turnover-linked rents, which would be attractive to any buyer.

At its peak, Debenhams operated around 175 stores with sales of more than £2billion.

But it failed to shift online as rapidly as some of its rivals and had been left holding expensive leases – a hangover from its ownership under private equity 14 years ago – as its fortunes declined.

It was struck off the stock market last year when it collapsed into administration and creditors seized control.

The coronavirus pandemic has blindsided shops and many believe it will accelerate the shift online.