Sports Direct’s billionaire founder is betting on a Tesco recovery.
Eccentric plutocrat Mike Ashley took a big punt on the recovery of floundering retailer Tesco this morning, entering into a put option with Goldman Sachs. Sports Direct exposed to the tune of £43 million ($70.15 million) if it’s wrong.
That’s just 0.28% of Tesco’s share capital, highlighting the colossal size of the business.
Accendo Markets head of research Mike van Dulken gives a succinct explanation of the put option Sports Direct has entered into:
“The contract has seen him, in return for a premium, write/sell a contract giving investment bank Goldman Sachs the right to sell him (oblige him to buy) Tesco shares at an agreed price in the future and is essentially him placing a bullish bet on the Tesco share price recovering from its recent 11-year lows. If the shares are trading above the agreed price on the contract’s expiry Ashley pockets the difference but if they are below he will have to pay out the difference.”
Effectively, Ashley — an incredibly private executive who never gives interviews and uses a plastic bag instead of a briefcase — is betting this is the bottom, or close enough, for the world’s second biggest retailer. That’s on the morning that Sky News revealed that CFO Laurie McIlwee hasn’t been involved in the running of the company since April, during which time its £250 million accounting blunder was made. Just yesterday ratings agency Moody’s put Tesco on review for a downgrade too.
Tesco shares still aren’t enjoying any relief. They’re flat this morning, down at £1.9485, down by nearly a quarter in the last month, and 48% lower than their level a year ago.
Ashley is probably best know for his controversial ownership of Newcastle United, during which time he renamed the club’s iconic St James’ Park “Sports Direct Arena,” and was spotted drinking with fans in local pubs before matches. The naming decision which was later reversed.
Business Insider Emails & Alerts
Site highlights each day to your inbox.