Mike Ashley's Sports Direct enters into put option agreement with Tesco

Sports Direct - owned by NUFC owner Mike Ashley - is gambling on Tesco's fortunes rising

Sports Direct
Sports Direct

Mike Ashley's retail giant Sports Direct said it is showing its long-term faith in beleaguered supermarket Tesco by taking out a “put option” on 23 million shares – accounting for a 0.3% stake.

The sportswear specialists, founded and chaired by the Newcastle United owner, are gambling on shares in the firm, which remains the UK’s biggest grocer, despite its admission on Monday that sent its share price plummeting.

Tesco has been in turmoil after revealing it had overstated its guidance for half-year profits by £250m, a move which has prompted an investigation into the business.

Sports Direct has issued a note on the stock exchange saying the agreement with Goldman Sachs International involves 23 million ordinary Tesco shares.

A put option gives firms the ability to sell shares in a company over a specific period and at a specific price and represents a smart financial move by the firm.

Instead of taking an equity stake, as Sports Direct did briefly in Debenhams, the firm has an option which could be a great investment if the share price rises in its favour.

Sports Direct said its “maximum exposure” under the put option was limited to approximately £43m.

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

Mr Ashley’s firm’s move comes after Tesco’s second biggest shareholder sold part of its stake.

The US investor BlackRock now controls less than 5% of the retailer’s stock, according to a market statement issued on Wednesday, which showed that the sell-off had taken place the day pf the profits admission..

Brewin Dolphin retail analyst Nicola Di Palma said there were many factors that could have spurred the put option by Sports Direct.

She said: “ We believe the main motivation for the deal is financial, with Mr Ashley trying to make a quick buck out of the deal.

“It could also help ingratiate Mr Ashley to Tesco chief executive Dave Lewis, as the two retailers have been in discussion to place Sports Direct concessions into Tesco stores.

“Should Tesco’s share price improve in the next few weeks/months we are convinced that Mr Ashley would sell the shares, despite their proclamation of belief in Tesco’s long term future.”

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