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Tesco’s Dave Lewis receives unexpected confidence boost from Sports Direct’s Mike Ashley

New Tesco CEO Dave Lewis can take time out from checking under the table to see if another bomb is about to go off to consider whether Sports Direct owner Mike Ashley knows something he doesn’t.

Ashley (left)ashley_2340404b, whose ‘pile it high flog it cheap’ sports retailer is doing what Tesco used to do rather well, has taken a ‘put’ option on 23m Tesco shares (0.28 per cent of Tesco’s issued share capital) in a deal with Goldman Sachs. If the shares go up he wins his bet, if not he stands to lose up to £43m. Ashley did the same sort of thing with Debenhams a while ago and won.

£43m may not be that much money for Ashley (his stake in Sports Direct is worth over £3bn) but it’s still a risky bet for Sports Direct. One of the options facing Lewis, who’s grappling with a £250m profit mis-statement, is a rights issue which would need to be at a steep discount to the current share price, down 15 per cent since Monday to below 200p.

Sports Direct says the investment “reflects Sports Direct’s growing relationship with Tesco and belief in Tesco’s long-term future.” Some Sports Direct brands are sold via the Tesco website. Ashley will also be interested in Sports Direct stores in under-populated Tesco Extras.

Ashley is a more than capable retailer despite his seat-of-the-pants style. He succeeded in wresting the high street sports market away from the gaggle of northern businessmen who used to control it. They made the mistake of telling him “there’s a club in the north son and you’re not a member.”

Might Ashley be interested in taking over Tesco? Unlikely – Sports Direct is valued at £4bn while Tesco is about £18bn (although falling). So a full bid is unlikely.

So, on balance, Lewis, who departed a comfortable billet as head of Unilever’s Personal Care division to take over at Tesco, should be reassured by Ashley’s ‘support.’ Then he can set about finding the next ticking explosive.

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About Stephen Foster

Stephen is a former editor of Marketing Week and London Evening Standard advertising columnist. He wrote City Republic for Brand Republic and is a partner in communications consultancy The Editorial Partnership.
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