Sports Direct’s Mike Ashley takes bet on Tesco with options deal
Mike Ashley’s Sports Direct has made a dramatic intervention in the turmoil surrounding Tesco, taking a bet that shares in Britain’s biggest retailer will rally.
The sportswear chain controlled by the billionaire owner of Newcastle United football club said on Thursday that it had agreed a deal with Goldman Sachs that will see it benefit from any rise in Tesco’s share price from its current decade lows.
The arrangement – known as a put option – gives Goldman the right to sell 23m Tesco shares to Sports Direct if they fall below a certain undisclosed exercise price, or receive a payment. If the shares are trading above the agreed price on the contract’s expiry, Sports Direct collects the difference; if they are below, the retailer will have to pay out the difference.
Sports Direct said its maximum exposure under the deal was £43m.
People close to the situation said investing in this way, rather than simply buying the shares, means Sports Direct obtains access to a bigger stake, and ties up a smaller proportion of its balance sheet until the option matures.
They said the arrangement reflected Sports Direct’s growing relationship with Tesco, and its belief in the supermarket group’s long-term future.
Sports Direct has already taken space in Tesco stores in central Europe and has is looking at similar arrangements in Asia. The FT reported last year that Sports Direct was in talks with Tesco to take surplus space in some of its big UK stores.
Earlier this this year, Sports Direct entered into a similar arrangement with Debenhams that could result in it taking an almost 7 per cent stake in the department store chain in 2015, if shares in Debenhams fall.
Sports Direct has since begun a trial selling its goods in two Debenhams stores.
The UK Listing Authority forced Sports Direct’s statement on Thursday. Goldman is the counterparty to both the Debenhams and the Tesco deals, and therefore Sports Direct had a listing obligation to disclose the arrangement over the Tesco shares.
Tesco said on Monday that in a profit warning less than a month ago, it had overstated expected first-half profit by £250m. It asked four senior managers, including UK managing director Chris Bush, to step aside during an investigation by Deloitte and Freshfields.