Sports Direct bets on Tesco recovery

Billionaire Mike Ashley’s Sports Direct International made a £43m (€55m) bet on a recovery in Tesco’s share price, days after the biggest UK grocer said it overstated its profit forecast.

Sports Direct, Britain’s largest sports-goods retailer, said yesterday it entered a so-called put option agreement with Goldman Sachs over 23 million Tesco shares, or the equivalent 0.28% of the company’s share capital.

“The investment reflects Sports Direct’s growing relationship with Tesco and belief in Tesco’s long-term future,” Sports Direct said.

Tesco shares fell to the lowest in more than a decade this week after the supermarket company suspended four executives and said it had discovered that first-half profits had been overstated by £250m. Standard & Poor’s said late yesterday that the grocer’s credit rating may be cut to junk.

The shares dropped 1.2% to 192.5p in London yesterday, the lowest closing price since April 24, 2003.

Sports Direct said its maximum exposure under the agreement will be limited to £43m. It’s not the first time Mr Ashley’s company has made a wager on a UK retailer. In January, it took a bet on shares of department-store operator Debenhams using a similar option agreement.

Sports Direct had been in discussions with Tesco to take space at some of its largest superstores which are undergoing refurbishment, reducing the amount of space used for food and bringing in outside retailers and cafes and restaurants.

“We suspect that most Sports Direct shareholders would probably prefer Mike Ashley to stick to what he’s good at, and not go round punting in Tesco shares,” said Nick Bubb, an independent retail analyst.

Sports Direct shares fell 3.4% to 637.5p in London, the lowest closing price since Aug 21, 2013.

— Bloomberg