Sports Direct owner Mike Ashley takes £43m punt on Tesco shares

Mike Ashley’s Sports Direct International has made a £43m bet that shares in troubled supermarket Tesco will recover after their recent slump.

The billionaire, who also owns Newcastle United football club, has agreed with Goldman Sachs to buy 23m Tesco shares from the bank at a set price in the future. Under the terms of this put-option, if Tesco shares are below this exercise price at the time the option expires, then Sports Direct either has to buy the shares from Goldman at the agreed higher price, or pay the bank the difference. In either case Ashley’s business will lose out.

Sports Direct will receive a premium which is payable when the option is exercised, which would mitigate any losses if the shares fell.

However, if Tesco shares climbed above the exercise price, the premium would represent a profit for Ashley and the company. Sports Direct would not reveal the exercise price or when the option would expire.

Sports Direct said it was required to put up cash as collateral for the 23m shares, which represent 0.28% of Tesco. It said: “After taking into account the premium it will receive, Sports Direct’s maximum exposure under the put option is limited to approximately £43m.”

Tesco shares have lost around 15% of their value this week after it unveiled a surprise profit warning on Monday and admitted to accounting errors which led it to overstate its first-half profit by £250m.

Sports Direct said its investment “reflects [its] growing relationship with Tesco and belief in Tesco’s long term future.”

The news has done little for Tesco’s shares so far, which are down 0.2p at 194.7p. On Wednesday it emerged that Tesco’s second-biggest shareholder, BlackRock, had sold around a fifth of its stake after the profit warning. Meanwhile, Sports Direct is steady at 660p.

The Tesco move is not the first time Ashley has surprised the City with a complicated share deal.

In January, Sports Direct bought a 4.6% stake in Debenhams, only to sell it less than a week later for a profit of around £5m and replace it with another complicated option arrangement. It took out a put-option giving it the right to take ownership of up to 81.3m shares in Debenhams or 6.6% at a future date, giving it a measure of influence without directly controlling the holding. It said then that5 its maximum exposure would be £64m.

Since then Debenhams shares have lost around 25%, but Ashley did agree a deal with Debenhams to put Sports Direct concessions in its stores. He also bought stakes in rivals Blacks Leisure and the now-bust JJB Sports.

As with JJB, his bets are not always successful. He reportedly lost around £300m buying shares in HBOS, which subsequently was rescued by Lloyds Banking Group.

Analyst Nick Bubb said: “Well, Mike Ashley is a great retailer, but his latest punt in Tesco is reminiscent of his supportive punt in Debenhams back in January, which doesn’t seem to have turned out particularly well.

“With mighty BlackRock selling, it clearly takes two to make a market, but 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.”

Ashley also sold £200m worth of Sports Direct shares to Goldman Sachs in April, shortly after shareholders rejected a proposed bonus scheme which would have seen him receive 8m shares in 2018.