Sports Direct International has reinforced its relationships with these two U.K.-based retailers with new put options that give Goldman Sachs the right to sell shares to SDI in them if their share price falls below certain levels. SDI is already working with both of them through concessions in their stores.
A recent such derivative deal involves the sale of 23 million shares in Tesco, a big supermarket chain that is also active in eastern Europe. Reportedly, Sports Direct is leasing space at eight Tesco stores in central Europe and four in Malaysia. It also operates its own stores at 11 sites in the U.K. that are owned by Tesco. They are either adjacent to Tesco stores or in the premises of former Tesco supermarkets.
Last January, it struck a put option deal with Goldman Sachs for a 6.6 percent stake in Debenhams, the British department store chain, and began to test sporting goods retail concessions at two of its stores, located in Harrow and Southsea, indicating that the program may be extended to other locations before the end of this year.
If exercised, the put option on Tesco's shares would only cover less than 0.3 percent of its equity. On Oct. 3, Sports Direct announced the acquisition of a 4.60 percent stake in Debenhams, giving it a potential aggregate stake of 11.22 percent in that retail group.
The investments in Tesco and Debenhams are worth £43 million (€54.58m-$69.15m) and £64 million (€81.24m-$102.93m), respectively. In a less strategic investment, Sports Direct recently acquired an 11 percent stake in another British retailer, House of Fraser, which is falling under the control of a Chinese conglomerate, Sunpower.
According to The Financial Times of London, the mastermind behind Sports Direct's derivative deals is Jeff Blue, an investment banker born in New Zealand who worked previously for Merrill Lynch and Baugur, the Icelandic investment fund. Mike Ashley, Sports Direct's maverick main shareholder, hired Blue in 2012. He had previously advised him on his failed bid for the former Blacks Leisure Group.
