JJB Sports’ board this morning “unanimously” backed Sir David Jones, its
executive chairman, after he took out a £1.5 million personal loan with Mike
Ashley, the founder of Sports Direct, JJB's principal rival.
A statement from the company said that the board's executive directors and its
financial and legal advisers - Lazard, KPMG and Herbert Smith - were made
aware of the controversial lending agreement earlier this year. Company
insiders conceded that non-executives had not been informed because it was
considered a personal matter. (See below for full list of executives and
non-executives)
JJB said today that Sir David will "repay the loan as soon as possible,"
which was made in October 2007. Sir David was appointed as a non-executive
at JJB Sports in November that year. He took over as executive chairman
after a boardroom coup at the beginning of this year. (See details of how
the drama unfolded below)
The board today said it was "clear that the arrangement was initiated
before Sir David joined the company" and that it has not given "rise
to any conflict of interest".
JJB claims that the loan was made to a separate software company, Advanced
Network Technologies (ANT) which is owned by Sir David with his son, Stuart
Jones. Sir David has a 70 per cent stake in ANT.
However, an e-mail seen by The Times and sent by Bob Mellors, Sports
Direct finance director, to Dave Forsey, chief executive, and the company’s
lawyers on Friday, flatly contradicts this version of events, claiming that
the loan was made to Sir David himself, and not ANT.
Mr Mellors, who telephoned Sir David after the JJB boss contacted Mr Ashley on
Friday, said that Sir David proposed presenting the loan as a company
donation to Sir David’s charity, or as an investment. “I confirmed that we
would not be inclined to say it was something that it was not . . . David
confirmed that he would not want us to lie,” he said.
Sir David has offered Mr Ashley a 10 per cent stake in the company in lieu of
repaying the loan. Mr Ashley is not expected to take up the offer, meaning
that he will receive cash in an unspecified time.
JJB said in today’s statement that the company “viewed the arrangement as a
private one concerning Mr Ashley and Sir David and not one requiring public
disclosure”.
Details of the loan emerged as JJB is finalising a £50 million cash call. JJB
believes the emergence of the loan has been deliberately timed to cause
maximum embarrassment to the retailer and put its ability to raise new funds
from investors under pressure.
The belated comments come after Sir David and JJB remained silent on Monday,
amid mounting questions over the appropriateness of the loan. This morning,
there was still no comment from Sir David himself, but JJB's statement said
that the company's board "considers the matter closed".
JJB said today: “The board expresses its unanimous support for Sir David and
takes the opportunity to thank him for leading the company through the
successful disposal of the group's fitness clubs business, the CVA process
and a bank refinancing in his first six months as executive chairman.
“The board believes that he is the right person to lead the company through
the next phase of the group's restructuring and to turnaround its sports
retail business.”
Mr Ashley is not only a rival but a trading partner — JJB still stocks a
number of his brands — and has been a leading shareholder in the retailer
for much of the period since he granted the loan.
Sir David, a former chief executive of Next, was appointed as executive
chairman of JJB this spring when the company was on the verge of bankruptcy.
He promised to turn it around in the wake of a series of commercial
decisions by Chris Ronnie, the former chief executive. Mr Ronnie, who had
previously worked for Mr Ashley, was dismissed soon after his 27 per cent
shareholding in JJB was repossessed by his Icelandic bank lenders.
The Association of British Insurers, which represents Britain’s biggest
investors, said last night that a loan from a shareholder and rival to a
board member could in some circumstances constitute a conflict of interest
under the Companies Act.
City advisers said that the questions of if and when the board was informed
about the loan were key.
Sources close to Sir David claimed yesterday that the loan was being used by
Sports Direct to embarrass Sir David, because he put a stop to a lucrative
line of business for Mr Ashley.
Richard Gubbins, a partner with Ashurst, the law firm, said: “You would have
to question why a major competitor or even someone with a trading
relationship would be willing to make a personal loan.
“I would have declared it to the board, then left them to make sure whether it
was in the best interests of shareholders and to decide whether or not to
declare it to the market.
“Even if that happened, this does raise eyebrows as far as David Jones is
concerned. It’s somewhat embarrassing.”
JJB’s investors include Crystal Amber, a Guernsey-based fund manager, with
14.1 per cent; Harris Associates, a US investment firm, with 12.83 per cent;
JD Sports, a trade rival, with 9.99 per cent; Standard Life Investments,
with 4.5 per cent; and Investec, with 4.28 per cent. All were contacted by The
Times. All declined to comment.
ANT owed about £4.4 million to creditors at the end of 2007, according to
documents filed at Companies House. JJB Sports paid £45 million to companies
related to Mr Ashley in its final year under Mr Ronnie, but has cut this to
almost nothing under Sir David. Business with Mr Ashley’s companies has been
all but stamped out.
Mr Ashley had tried to scupper Sir David’s turnaround plans by trying to lure
JJB’s landlords to Sports Direct, which would have triggered a collapse in
support from JJB’s banks. Mr Ashley has also bought a number of former JJB
stores.
Who's who on JJB's board
JJB has three non-executives, with lawyer and former chairman, Roger
Lane-Smith, its deputy chairman and senior independent director. A
former senior partner of DLA Piper in the UK, he was JJB's chairman for
three years from 2005 until Sir David took the helm.
The other two non-executives are David Beever, a former banker with SG
Warburg, and Alan Benzie, an accountant who at one time ran KPMG in
the North of England before leaving in 2003.
The other board members, all executives who knew about Sir David's lending
arrangement, were Lawrence Coppock, the finance director, Richard
Manning, legal director, and Colin Tranter, its director of
retail.
How drama unfolded
Oct 2007 David Jones, the former chief executive of Next, receives £1.5
million from Mike Ashley
Nov 30 Mr Jones is appointed non-executive director at JJB Sports. His
directorship is believed to have been under consideration for some weeks.
It is unclear when the loan was disclosed to the board and JJB has refused to
provide this information
Sept 26, 2008 JJB shocks the City with a profit warning, amid
accusations of a breach in banking covenants
Oct 15 Mr Jones is appointed senior executive director of JJB
Oct 17 Sports Direct, the sports retailer founded by Mike Ashley, says
that it has bought a 4.7 per cent stake in JJB, prompting an OFT inquiry. Mr
Ashley held more shares on his own account through contracts for difference
Jan 2, 2009 JJB appoints the newly knighted Sir David Jones as
executive chairman. He still owes Mr Ashley, one of the company’s largest
shareholders, £1.5 million
Jan 14 Chris Ronnie, chief executive of JJB, admits that Kaupthing, his
bankrupt lending bank, has seized control of the 27.5 per cent stake he
acquired in 2007. Sir David dismisses him as chief executive soon afterwards
May 28 It emerges that Sports Direct had sold its JJB stake
July 5 JJB admits the existence of £1.5 million loan from Mr Ashley to
Sir David
One leaked document says that Sir David wrote to Mr Ashley to thank him for
lending him the money to fund one of his start-up companies, Advanced
Network Technologies Limited.
However, according to a different leaked loan document, written by Mr Ashley,
the loan was granted to Sir David because he was “encountering temporary
personal financial difficulties”
