Drama at Debenhams

The outlook at department store group Debenhams is dismal, while Mike Ashley, who owns 30% of it, has been putting his oar in. Matthew Partridge reports.

930-shares

"There is a big question mark over the future of the department store as a concept," says The Independent. But whatever eventually happens to that shopping format, the speed of the decline at Debenhams shows this one has got things "badly wrong". It was reported this week Debenhams is planning to close a total of 90 stores, which could threaten 10,000 jobs.

The embattled chain had already said it will shut around 50 stores over three to five years; it now seems the board thinks these plans don't go far enough. Thanks to fewer shoppers, a large rent bill and intensifying online competition, the company's market capitalisation has slumped from £1.7bn at its flotation in 2006 to the present value of £87m today, notes Ben Chapman, also in The Independent.

Such drastic cuts are necessary if Debenhams is to succeed in its "desperate fight for survival" says Sam Chambers in The Sunday Times. This is because the chain's store occupancy costs were almost ten times its profit last year, a legacy of a "damaging" decision by the previous owners to sell the stores and then rent them back on 30-year leases. One way for Debenhams to implement these store closures without having to pay compensation is through a company voluntary agreement (CVA) which would allow Debenhams to cut rents and shut shops. However, this needs the agreement of landlords, and while some might accept this is a way to ensurethey will at least be able to count on some income in future, those "who own many of its poorest-performing stores will be less accommodating."

Another grenade from Mike Ashley

Investors and the board were "caught napping" by this unexpected move. Ashley claims he simply wants to recoup "more than £100m" in losses on his investment in the company. But in that case why "pull the rug out from the under the management team"? It appears that "Ashley is tryingto win control of the business on the cheap".

His move could also damage vital negotiations with lenders, say Ashley Armstrong and Ben Marlow in the Sunday Telegraph. Debenhams will need a loan restructuring, which will involve getting creditors to write down their debt in return for shares. However, Mike Ashley is likely "to block any refinancing that would dilute his investment". Such a move "will set the scene for an almighty battle between one of the high street's most pugnacious characters and some of Wall Street's most aggressive hedge funds". The stand-off "would also risk pushing Debenhams into insolvency".

Newmont joins gold-merger party

However, while optimists argue the deal should produce $100m in annual synergies, these will be dwarfed by the $1.5bn premium Newmont is offering. What's more, "getting cost savings out in Canada may be problematic in an election year, insofar as they come from dispensing with workers".

The upshot? "It's hard to see why Newmont's decision to be bigger will make it much better".

Nonetheless, analysts are expecting "a flurry of dealmaking" as the industry seeks to improve its performance and boost shareholder returns, say Henry Sanderson and Neil Hume in the Financial Times.

Poor returns in the past five years have prompted shareholders to call for consolidation.

Ironically, this pressure for action comes at time when the metal itself isn't doing too badly, says Bloomberg's Liam Denning. Although it has fallen by around a third from its 2011 record peak, gold has traded sideways for much of the past five years.

The problem is that "they have suffered... from the rise of gold-backed exchange-traded funds, which offered goldbugs purer exposure to the precious metal". The miners "need to do something to spark some interest in their stocks", with the result that other mergers are "all but certain to follow".

City talk

Halfords is one of those listed companies that "never quite find their mojo", says Patrick Hosking in The Times. Despite a "well-known" brand, a "strong" market and an "enormous surge" in cycling, its performance has been "wobbly". The share price is "well below" the flotation price of 2004.The excuse about wintry weather depressing sales is getting old, while it is also hard to see how a renewed emphasis on autocentres will provide the "magic potion" where other strategies have failed. Still, if you're looking for value, the stock costs a mere nine times this year's expected profits and yields more than 8%. It also carries little debt.

Rising demand for natural beauty products in Asia has led to several deals between high-end skincare brands, say Bloomberg's Daniela Wei and Denise Wee. The latest is L'Occitane's decision to spend $900m on buying Elemis. The hope is that the purchase of a brand popular among millennial and Generation X consumers will help it reach its €1.7bn sales target within two years. The market clearly doesn't think so: L'Occitane's share price fell by nearly 5% after the deal was announced.

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