Mike Ashley Orders New Round of Deals as His Investors FretBy
Sports Direct places bets as shareholders question governance
Chairman Hellawell faces vote as U.K. sports retailer falters
In the tumultuous year since Mike Ashley returned as chief executive officer of Sports Direct International Plc, the U.K. retail tycoon has stepped up his deal-making, snapping up everything from a lingerie brand to U.S. sellers of outdoor gear.
At the company’s annual meeting on Wednesday, investors will get their say on a strategy that some argue is better suited to a hedge fund than a publicly traded sporting-goods retailer. Chairman Keith Hellawell has pledged to stand down if a majority of independent shareholders oppose his re-election for a second year in a row, and influential advisory groups and fund managers are urging them to do so.
“The chair should be challenging and testing these deals to ensure they are more likely than not to succeed,” said Paul Lee, head of corporate governance at Aberdeen Asset Management, which owns Sports Direct shares. “It is impossible for investors to know what Ashley is going to do next and frankly, the way he himself tells the story, he doesn’t always know what he will do next.”
Giving a thumbs-down to Hellawell is one of the few ways investors can vent their frustration over a lack of internal scrutiny of Ashley’s actions. The sporting-goods company manages a growing portfolio of stakes in other retailers, but its founder and majority shareholder has yet to detail an overarching strategy at a time when his after-work activities are grabbing the spotlight. A London court in July rejected a banker’s claim that Ashley owed him a $20 million bonus after a night of heavy drinking.
There are few common threads to Ashley’s myriad investments. Some of the deals may be aimed at broadening the reach of Sports Direct’s brands such as Slazenger and Donnay. Ashley used its position in department-store chain Debenhams Plc, which now stands at 21 percent, to pressure management into opening Sports Direct concessions in seven of its stores in 2015.
Others, such as his 29.6 percent holding in U.S. sporting-goods seller Finish Line Inc. and a $101 million acquisition of Bob’s Stores and Eastern Mountain Sports, are opportunistic swoops on floundering companies. Finish Line’s management, unnerved by Ashley’s advances, announced a poison pill in August to ward off a potential takeover.
In March, Ashley backed a 60 million-pound ($78 million) buyout of lingerie brand Agent Provocateur, a month after opening a position in struggling fashion retailer French Connection Group Plc. Those deals were followed in July by a 25.75 percent stake in U.K. computer game retailer Game Digital Plc, days after the shares hit an all time low.
“The group is focused on opportunities that will deliver benefits for our customers, broaden or enhance our commercial relationships or retail channels, selectively grow our market share and/or further diversify our operations,” Sports Direct said in its annual report. The company declined to comment further.
Ashley often keeps investors guessing by starting with pint-size positions, then buying more shares or taking out derivatives contracts that increase his exposure without giving him an outright stake. He retook the company’s reins in September 2016 after Dave Forsey resigned as CEO following a series of governance scandals.
“It seems to be seat-of-the-pants decision-making,” Roger Barker, head of corporate governance at the Institute of Directors, said by phone. “Shareholders have to trust Mike Ashley’s judgment without the checks and balances that might exist in another company.”
The entrepreneur’s unpredictable behavior was easier for investors to stomach when Sports Direct’s cheap sportswear was flying off the shelves, but a failure to keep up with consumer trends and hedge its currency exposure precipitated a 59 percent drop in annual profit last year. As the core business struggles, Ashley has struck six new deals in 2017.
In July, Ashley told analysts that he didn’t expect many of his investments to pay off, but that the odd bet that does would generate healthy returns. For some shareholders, Ashley’s commercial acumen has historically outweighed concerns over a lack of transparency and indifference toward corporate-governance conventions.
The CEO failed to capitalize on the athleisure trend -- sportswear worn as casual clothing -- that has boosted rival JD Sports Fashion Plc. Now he’s having to revamp Sports Direct’s often dowdy stores to try to persuade Nike Inc. and Adidas AG to supply him with their top products. Amid low expectations, the shares bounced back in July after the CEO said he aimed to grow profit by between 5 percent and 15 percent this year.
Standard Life Investments, Sports Direct’s largest independent shareholder at the start of the year, has had enough. It has sold almost all of its 4.8 percent stake in the company this year due to governance concerns. Leon Kamhi, head of responsibility at Hermes Investment Management, said Ashley has failed to deliver on his promises of increased engagement with investors, joining advisory groups including Institutional Shareholder Services in recommending a vote against Hellawell.
After failing to secure the support of independent shareholders at last year’s AGM, where his position was saved only by the votes of Ashley’s majority stake, the chairman said he’d step down if he suffered a similar setback this year.
Ashley shows no sign of yielding to convention. When pressed on his investment strategy in the July court case he replied: “when the fishes swim one way, I swim the other.”