Sports Direct, the retail empire controlled by its billionaire founder Mike Ashley, bought shares in rival retailer Debenhams on Monday — and apparently paid considerably more than they are worth.

It was a deal that Mr Ashley could not refuse because of an options contract Sports Direct entered into with its then broker Goldman Sachs in 2015, when the retailer was trying to persuade Debenhams to open more of its sportswear concessions. 

Sports Direct is committed to buying 10.5 per cent of Debenhams’ shares in 10 transactions during October and November. The price, which was agreed more than two years ago, has not been disclosed.

However, Sports Direct warned in 2015 that it could be forced to pay more than the market price for Debenhams shares when the options matured. It said its maximum exposure, net of fees it was receiving from Goldman, was £85m, which equates to 65.9p per Debenhams share.

That is 43 per cent higher than Debenhams shares were trading on Friday, suggesting that Sports Direct could be paying £25m more for its stake than the £59m it is now worth. The final amount will depend on contractual terms that have not been disclosed.

Sports Direct and Goldman declined to comment on the trades. Sports Direct said it had appointed Liam Rowley, a former equity research analyst, to conduct “a thorough review of all current strategic stakes”.

Mr Ashley’s company eventually opened nine concessions in Debenhams stores. Executives at the department store say the initiative was experimental and unrelated to Mr Ashley’s share trades, which took place after the first openings. Others briefed on the conversations argue that his economic interest helped concentrate minds.

The experiment was not an unalloyed success. “What you’ve seen is that if you put a standard Sports Direct in, that’s probably not the right opportunity for us,” says Debenhams’ chairman Sir Ian Cheshire. Four of the concessions are due to close by the spring.

Debenhams on Thursday unveiled a 44 per cent decline in pre-tax profit, dragged down by store writedowns and restructuring costs, while chief executive Sergio Bucher warned of volatile trading conditions that had deteriorated in the second half of the year.

Because Sports Direct is acquiring shares to replace options contracts that are lapsing, the sportswear chain’s economic exposure to Debenhams will remain unchanged, and Mr Bucher said he was looking forward to discussions with Mr Ashley.

“[He] is a very smart investor and he sees value in our shares,” Mr Bucher said. “He sees the upside.”

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