Sports Direct tipped as department store buyer, but speculation also swirling around Debenhams and Sir Philip Green’s empire
Don McCarthy, the high street entrepreneur who runs House of Fraser, has put the department store group up for sale and is understood to be talking to a number of interested buyers including Sports Direct and its owner, Mike Ashley.
McCarthy, HoF executive chairman would not comment on sale speculation but insisted he would look after the interests of all shareholders – among whom relations have been fraught in the past. “No shareholder is going to be put in a compromising position,” he said.
Last week McCarthy negotiated the sale of Aurum, the firm behind jewellery chains Goldsmiths, Mappin & Webb and Watches of Switzerland, to US private equity group Apollo. He stepped down as chairman of Aurum, leading to suggestions he is likely to do the same at House of Fraser should he secure a sale backed by the shareholders.
Industry insiders suggested possible suitors other than Ashley might include Debenhams, which has been speculatively named as a merger partner with House of Fraser in the past. Speculation is also swirling around Sir Philip Green’s Topshop and Dorothy Perkins high street empire since his shock sale last week of a 25% interest to US private equity house Leonard Green & Partners. The move is seen by many as a signal Green is preparing for a major acquisition – though it would be a surprise if House of Fraser was the prize in his sights.
Sports Direct is likely to face a barrage of questions about any interest in House of Fraser when it delivers half-year results on Thursday.
McCarthy and his family account for 20% of voting shares in House of Fraser’s holding group. A further 49% are in effect controlled by representatives of failed Icelandic banks, largely Landsbanki.
Beyond that, the largest shareholders are Ashley’s friend Tom Hunter and fellow retail entrepreneur Kevin Stanford, who control 11% and 10% respectively according to filings at Companies House. Failed Icelandic bank Kaupthing believes it has a claim over Stanford’s shares after he lost much of his investment empire before the Icelandic banking meltdown of 2008. The two sides are in legal dispute.
Stanford controversially took up his seat on the House of Fraser board in April after a long period of absence that had led many to assume he had forfeited his interest. McCarthy – despite a long history as an investment partner with Stanford – made it clear he was “not welcome”.
McCarthy, Stanford and Hunter had been part of a consortium led by Icelandic tycoon Jón Ásgeir Jóhannesson’s Baugur Group, which took House of Fraser private in 2006, paying £350m. Baugur has since failed.
Jóhannesson, McCarthy and Stanford had a long history as close business partners, in particular through co-investments in the now bankrupt Mosaic Fashions, the high street fashion combinewhich used to own Oasis, Karen Millen, Warehouse, Coast, Principles and Shoe Studio. The trio also had interests in Aurum at one stage.
A sale of House of Fraser would require the approval of a large majority of House of Fraser’s backers. Two significant UK-based backers contacted by the Guardian indicated they were supportive of McCarthy’s efforts.
Before its demise, Baugur owned stakes in British retailers ranging from House of Fraser to supermarket chain Iceland and toy store Hamleys. After a spectacular boom, Iceland’s banking system suffered an equally spectacular bust in October 2008 with its three largest banks Kaupthing, Glitnir and Landsbanki all failing in quick succession. Baugur investments largely fell into the hands of administrators to Landsbanki.
After sitting on various former Baugur holdings for the last four years, the administrators to Landsbanki that now substantially control them, have begun to sell them off this year. As well as last week’s sale of Aurum, in September Landsbanki sold Hamleys to French toy retailer Groupe Ludendo for a reported £60m. In February Iceland, another investment that had involved Baugur and Stanford before the Icelandic banking crash, was sold back to founder Malcolm Walker, backed by the Landmark Group, the Dubai-based owners of restaurant chain Carluccio’s.