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Mike Ashley’s Sports Direct bets on Tesco recovery

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Sports Direct and sportsdirectfitness, which has been expanding due to acquisitions, has made a £43m gamble on Tesco and has entered into a put option agreement with Goldman Sachs over 23m Tesco shares – equivalent to 0.28 per cent of the company’s share capital.

In effect, Ashely could sell his shares at a certain price within a specified amount of time. But what he’s really hoping for is the supermarket’s shares rising.

Mike van Dulken, head of research at Accendo Markets, said: “In return for a premium, Ashley has a written contract giving Goldman Sachs the right to sell him TSCO shares at an agreed price in the future and is essentially him placing a bullish bet on the TSCO share price recovering from its recent 11 year low. If the shares are trading above the agreed price on the contract’s expiry Ashley pockets the difference, but if they are below he will have to pay out the difference.”

This is a risky bet, given Tesco shares have lost 15 per cent value. But Ashley is far from deterred when it comes to such situations, evidenced by a similar bet he made on a 6.6 per cent stake in Debenhams in January.

The two companies already have an arrangement, where Tesco is Sports Direct’s landlord, but these were normally standalone units. They are now discussing Sports Direct taking space in some of Tesco’s largest superstores, which are undergoing refurbishment and decreasing store space. Sources from the Financial Times state that it’s been considered that “Sports Direct is considering is taking the mezzanine floors in three of Tesco’s UK hypermarkets.”

This comes at a time where retailers are having to shift strategy and cut the rate at which they open big suburban stores in favour of hypermarkets. And Tesco chief executive Philip Clarke seems to be grappling with how to handle Tesco stores over 80,000 square feet.

News of any property deals however, will comes when Tesco face investors tomorrow, where Clarke could be facing questions from shareholders regarding pay and selling US business Fresh & Easy.

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