Blacks Leisure Group, the struggling British outdoor retailer trading under the Blacks Camping and Millets banners. announced today that it has received an expression of interest from Sports Direct International (SDI), the controversial leader in the broader sporting goods sector, in the possible acquisition of the company or parts of it. British newspapers reported that Mountain Warehouse and Go Outdoors were two other interested parties, along with Lion Capital, which owns Cotswold Outdoor in the U.K. and the leading outdoor retailers in Belgium and the Netherlands.
The last few days have been quite busy for the shareholders and the potential new investors in Blacks. SDI and others rushed to buy shares in Blacks after its board of directors announced last Wednesday (Dec. 7) that it was inviting offers to buy the whole company or parts of it before the end of January.
Citing difficult trading conditions and pressure on margins, Blacks had warned a couple of weeks ago that it may have to raise new funds or strengthen its capital to execute its strategic recovery plans. It also pointed out that it would have to refining its existing banking facilities before the end of its current financial year next March 3. As of Dec. 5, the company's net debt was around £36 million (€41.9m-$56.2m), down from a previously reported level of £40 million, but The Sunday Times reported from its sources that Blacks would need an immediate cash injection of £20 million (€23.4m-$31.3m).
After meeting with current investors holding a majority of its shares as well as potential new investors, the directors of Blacks concluded that would not be possible to raise sufficient equity before the end of fiscal year under the present conditions. “As a result,” the directors now wish to invite offers to support further investment in the group, which is most likely to involve a sale of the company or (the) sale of one or more of the group's brands,” the Dec. 7 statement said, adding that any interested parties should contact KPMG, Blacks' financial adviser.
The statement pointed out that Blacks' main lender, Bank of Scotland, was supportive of the sale process. It said that any interested parties participating in the formal sale process would not need to be publicly identified. Last October, Blacks started looking for potential buyers, but halted the project in January as it could not find anyone ready to step in.
Shortly after the announcement last Wednesday, several shareholders rushed to increase their shares in Blacks or to buy new shares in the company. One of the first to act, taking advantage of Blacks' depressed price of £1.88 on the London Stock Exchange, was SDI, the leading sporting goods retailer in the U.K. and Blacks' largest single shareholder, which raised its stake to 22.48 percent on Dec. 7.
Last July, SDI had already raised its share to 21.3 percent from a previous level of 14.5 percent. In August, SDI reportedly put pressure on David Bernstein, a British official close to Pentland Group, to resign as chairman of Blacks, to be replaced by Peter Williams, former chief executive of Selfridges. Before his resignation, the board appointed a new chief executive for Blacks, Julia Reynolds, who previously ran Figleaves.com. The new board said last week that shareholders have been appreciative of her turnaround efforts.
SDI had previously controlled up to 28.5 percent of the outdoor retailer, but its stake was diluted last year when a simple majority of Blacks' shareholders decided to launch a share issue that raised £19.7 million (€23.3m-$30.8m). Efforts by SDI to increase its stake again at the time, possibly leading to majority control, were thwarted by investments made by Pentland and VF Corporation, which acquired 5.86 percent and less than 5 percent of Blacks, respectively.
VF, parent company of The North Face, and Pentland, which owns Berghaus and controls the JD Sports Fashion retail group, have been critical of SDI's investments in Blacks, fearing that its discount orientation would damage Blacks' image. SDI, which took over the Field & Trek chain in 2007, has been reported lately by the Financial Times to have proposed a sort of joint venture with Blacks, suggesting that it could share its warehousing and IT facilities in return for a management fee.
Pentland's stake remained at 5.86 percent as of last Friday, according to a stock exchange announcement. On the other hand, other investors stepped in last week including Richard Griffiths with a 5.95 percent stake, Henderson Global Investors with 7.66 percent of the capital, Shroders with 8.95 percent, and a certain Franco Scolaro with more than 10 percent. It could not be determined whether any of these shareholders were acting in behalf of Ashley or SDI or any other parties. Griffiths is chairman of Ora Capital. Vidacos Nominees, a subsidiary of Citigroup, made a similar move by crossing 5 percent of Black's threshold. Spreadex, the operator of sports, financial and other bets, increased its stake from some 7 percent to more than 8 percent.
Two weeks ago, when Blacks complained about the downward pressure on consumer spending in the U.K., the price of the stock fell by 14 percent in a single day. On Dec. 7, in connection with the latest announcement, the price of the stock fell from well above £3.60 to below £1.6. By the end of last week, partially due to the purchases made by SDI and the other above-mentioned investors, the stock recovered and reached a level at £2.13. It stayed at the same level after the announcement of SDI's interest today. Blacks' shares were trading at more than £4 last January.
