Billionaire Mike Ashley buys House of Fraser for £90m

London

UK billionaire Mike Ashley swooped in to rescue the House of Fraser Ltd department store chain for £90 million (S$157.5 million), staving off collapse for an anchor of the country's troubled shopping districts.

Ashley's Sports Direct International Plc agreed to acquire all of the 169-year-old retailer's UK stores, as well as the brand name and inventory, it said in a statement. The move came after House of Fraser, which employs 17,000 people directly and through contractors, on Friday went to court to seek protection from creditors.

"This is a hugely ambitious move for Sports Direct," Richard Lim, chief executive officer of Retail Economics, said in a statement. "Turning around the business will not come easy."

The agreement averts a new dark turn for Britain's retail crisis after the failure of brick-and-mortar institutions such as Maplin Electronics, the UK arm of Toys "R" Us and department-store operator BHS. Pressure from online retailers such as Amazon.com Inc and a rise in costs stemming from the pound's Brexit-induced weakness are crippling the chain stores.

Mid-market retailers like House of Fraser have been hit particularly hard, with rivals Debenhams Plc and Marks & Spencer Group Plc shrinking store space as their online businesses have been slow to take off. More than one-quarter of the UK's largest department stores have shut since 2010, according to retail consultancy Altus Group.

House of Fraser's £175 million of floating-rate notes due September 2020 were quoted at a bid price of 20 pence on the pound, according to BNP Paribas prices on Bloomberg. That's down from about 30 pence before the deal was announced. Creditors risk losing part of their investment as part of a rescue deal. Bloomberg Intelligence analysts calculate that recovery valuation of the bond is about 29 pence.

The deal expands Mr Ashley's retail empire, which also includes a stake in Debenhams. A self-made billionaire who also owns the Newcastle United football club, Mr Ashley is a colourful figure on the UK retail scene, describing himself in courtroom testimony last year as a "power drinker" with a penchant for late-night pub antics. Sports Direct has faced scrutiny of its labour conditions from UK lawmakers.

Mr Ashley was one of at least four parties squaring off to rescue House of Fraser after China's C.banner International Holdings Ltd shelved plans to buy a majority stake. In a bid to avert collapse, House of Fraser in June laid out plans to close more than half of its 59 stores in the UK and Ireland, prompting protests from some landlords.

Mr Lim at Retail Economics said it's likely that Mr Ashley will rebrand some House of Fraser sites as Sports Direct. The sporting goods chain's pretax profit fell 73 per cent in the latest financial year, largely due to a one-time charge related to the Debenhams investment.

Though the deal salvages at least some of House of Fraser's stores, the squeeze on UK retailers is set to continue as merchants wrestle with a range of pressures, including recent property tax increases for many.

"This is yet another significant High Street rescue mission, and the crisis shows no sign of abating," Michael Mulligan, insolvency specialist at law firm Shake-speare Martineau, said. "With interest rates rising and less money in the pocket of the UK consumer, more household names may be at risk." BLOOMBERG