LONDON — Discount sports retailer Sports Direct raised its bet on the stock of struggling department store Debenhams.
As Business Insider pointed out back in March, Sports Direct’s interest in Debenhams is not a straight forward one. The company holds “put” options in stock — giving it the right to buy shares at a future date — and contracts for differences, a kind of financial bet on the performance of the share price.
Sports Direct has had these complex wagers in Debenhams stock — which amount to bets that the price will go either up or down, it’s not clear which — for three years now. The intentions of the manoeuvre are not clear and Sports Direct’s billionaire CEO and founder Mike Ashley has raised eyebrows in the city. There is speculation that Sports Direct could be preparing for a takeover bid, although the current arrangement does not give Ashley a direct stake.
Independent retail analyst Nick Bubb told Business Insider: “It is impossible to tell if he’s really long or short, but presumably his strategy is to make some money without putting up a lot of capital, but he’s had no influence on the management. If he really wants the business he’s going to have break his promise and bid for it.”
The discount sports retailer began its recent stakebuilding ahead of Debenhams strategy update in late April. Investors were unimpressed with the plans, with Debenhams stock falling over 3% on the day.
However, Morgan Stanley said in a note last week: “Despite the underwhelming response to its new CEO’s strategy update, Debenhams is now entering the phase that our analysis suggests may lead to significant share price outperformance.”
Debenhams shares at up 0.10% at 10.55 a.m. BST (5.55 a.m. ET) on Monday and Sports Direct shares are flat.
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