Comment: It’s hard not to admire Sports Direct

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The news that Sports Direct acquired a 4.63% stake in Debenhams last week week was eclipsed by the fact that the company then decided to sell the shares. This, along with an option contract, could eventually see Sports Direct take almost 7 per cent of the department store chain.

Sports Direct has already made a quick profit from the deal– about £5 million – and will receive a premium for entering into the derivatives contract. More importantly, the move has essentially taken the financial costs of holding a direct stake in Debenhams off Sports Direct’s balance sheet.

Given Sports Direct’s acquisition history to date, bold moves like these shouldn’t come as such a big surprise.

However, this unconventional reshuffle has apparently left both Debenhams and its investors feeling baffled, as many think that Sports Direct’s exact motives are not yet clear. Is this just an easy way for Sports Direct to acquire a bigger stake of Debenhams for a lower price – or is it more than that?

Analysts are already looking at how the structure of this latest deal could help Sports Direct to profit from the situation regardless of whether Debenhams’ share price goes up or down.

For example, if the two companies work well together, the share price may well go up. But, if the relationship doesn’t work out as hoped and the shares fall, Sports Direct could end up with a larger stake in Debenhams due to the complex financial arrangement.

Others have suggested that it may simply provide Sports Direct with a way of featuring its products in Debenhams’ stores or of building a network of click-and-collect points within Debenhams’ branches for its online orders.

Or it could just be another way of putting further pressure on the Debenhams management team. For now, Sports Direct is only saying that the deal will allow both companies to explore options at an operational level, whilst Debenhams has confirmed that it is ‘open minded’ about working with the group to improve its performance.

Regardless of which theory (or theories) is correct, it’s hard not to sit back and admire Sports Direct.

Debenhams rattled investors at the end of last year by announcing that it expects pre-tax profits for the six months to April 2014 to be £85 million, down from £115 million in the same period the previous year. In contrast, Sports Direct’s shares soared by more than 70% in 2013.

Sports Direct already has a history of taking stakes in companies under stress in a bid to influence the business, and Debenhams could just be the latest company to feel the heat.

But that doesn’t need to be a bad thing. If Debenhams can tap into some of Sports Direct’s retail magic – without sacrificing its history and heritage along the way – then it may be possible for both sides to win.