* Sports Direct buys 4.63 pct stake in Debenhams
* Wants to work together at an operational level
* Debenhams says it has an "open mind"
* Shares in Debenhams rise up to 6.5 pct
(Adds details, analyst comment, share price)
By James Davey and Neil Maidment
LONDON, Jan 13 Britain's Sports Direct
has bought close to a 5 percent stake in Debenhams,
raising the possibility of the troubled department store group
selling some of the value retailer's brands in its stores.
Debenhams shares, which hit a 22-month low of 71 pence after
a New Year's Eve profit warning, climbed as much as 6.5 percent
on Monday after Sports Direct said it had bought a 4.63 percent
stake and wants to explore how the groups can work together at
an operational level.
Sports Direct's stake, worth 46 million pounds ($75.8
million) at Friday's closing price of 81.6 pence, makes the Mike
Ashley-controlled company the seventh-largest investor in
Britain's second-largest department store group.
Analysts interpreted the move as an indication that Sports
Direct will seek to establish concessions for some of its
fashion brands, including Firetrap, Kangol and SoulCal, in some
of Debenhams' 156 UK stores, using its new position as a major
shareholder as leverage in negotiations.
They did not view the development as placing Debenhams in
the takeover spotlight.
Sports Direct, which joined the FTSE 100 index of blue-chip
companies in September, said the stock purchase had taken place
without the prior knowledge of the Debenhams board but said it
has communicated "its desire to work together" and its
"intention to be a supportive shareholder".
Prior to Monday's development, shares in Debenhams had lost
22.4 percent of their value in three months and 7.1 percent over
the past month.
Debenhams, which also parted company with its finance
director on the back of the profit alert triggered by awful
Christmas trading, said it was "open-minded" about exploring
opportunities to improve its performance alongside existing
initiatives to accelerate its multi-channel and international
It also said that any such moves would aim to create value
for all Debenhams shareholders, highlighting that Sports Direct
is one of a number of large stakeholders.
Sports Direct, in which Newcastle United soccer club owner
Ashley owns 62 percent, has grown rapidly to about 400 stores
across Britain through a mixture of acquisitions, rising online
sales and the demise of rivals such as JJB Sports, leading the
UK sports scene with value-led offers that have chimed well with
Though Debenhams said Christmas trading reflected an
unprecedented level of promotional activity across the retail
sector, the company has been criticised for excessive
discounting, which some analysts feel is damaging its brand.
"The way forward for Debenhams ought to be to move upmarket
a bit, discount less ... Dragging Debenhams downmarket and
turning it into even more of a discount store may not appeal to
retail purists," independent retail analyst Nick Bubb said.
Like Debenhams, Sports Direct, which also owns the Dunlop
and Lonsdale brands, has set it sights on a greater presence
across Europe, where it operates in 19 countries.
Over the past two years the company has considered acquiring
department stores group House of Fraser and has in the past
bought stakes in retailers including JD Sports, JJB and
Blacks Leisure, with mixed success.
"In our view, one should not read too much into this new
investment," said Cantor Fitzgerald analyst Freddie George.
"This acquisition provides a further distraction alongside
all other recent investments and broadly increases Sports
Direct's net debt to circa 160 million pounds," he said.
Shares in Debenhams were up 4.7 percent at 85.5 pence by
1229 GMT, while shares in Sports Direct were down 1.3 percent at
($1 = 0.6066 British pounds)
(Editing by David Holmes and David Goodman)