Could House of Fraser be saved in Milton Keynes?

    Advisers to House of Fraser (HoF) are courting Mike Ashley, the Sports Direct tycoon, to fund an emergency £50m deal to stave off the ailing department store chain's collapse.

    House of Fraser who have a store and a distribution centre in our city could be given a lifeline by the owners of Sports Direct. 

    Sky News has learnt that bankers acting for the retailer, which is trying to force through the closure of dozens of shops and thousands of jobs being axed, held initial talks with Mr Ashley's executives late last week.

    A source close to HoF said on Monday evening that Rothschild, which is advising HoF, had been approached by Mr Ashley about providing new funding, potentially in the form of a loan or equity injection.

    In a letter from Sports Direct dated July 2 which has been seen by Sky News, the company told HoF that it "would like to look at making an alternative offer".

    The move follows the disclosure that a £70m capital injection into HoF from the Chinese owner of Hamleys, the toy store, would be delayed for several months.

    Sources said that a secured loan from Mr Ashley's Sports Direct International, which owns an 11% stake in HoF, was one of a number of options now being explored.

    In its letter earlier this month, Sports Direct said it was "willing to structure a transaction on similar terms (subject to due diligence to confirm the level of investment/cash injection required".

    Mr Ashley's company added that it had cash resources available for investment and the ability to support HoF in areas such as "warehousing, online sales and the running of the business generally".

    A number of other parties, including unnamed financial investors, have also been approached, although the status of the talks is unclear.

    The department store group, which traces its roots back to 1849, is understood to be seeking new financing within the next four weeks.

    People close to HoF believe it is likely to collapse into administration without such support, putting 17,000 jobs at risk.

    HoF is understood to require new capital to purchase stock ahead of the crucial Christmas trading period, with its lending banks, led by HSBC, said to be reluctant to provide further financing with the company's survival in the balance.

    The talks with Mr Ashley underlines the fragile nature of HoF's prospects given the hostility of their recent relationship.

    The high street billionaire, who also owns Newcastle United FC, had to go to court last month to force HoF to hand over its confidential business plan.

    Mr Ashley has made little secret of his interest in owning HoF outright, having tried to buy it in 2014, when Sanpower gained control.

    The terms of a prospective loan are unclear, although insiders believe Mr Ashley is unlikely to sanction financial support for HoF unless there is a clear path to him ultimately acquiring control of the business.

    Alternatively, he could calculate that a deal would be easier to effect in the event that HoF goes bust.

    Under his stewardship, Sports Direct has accumulated stakes - often through complex financial instruments - in a number of British high street chains, including HoF's rival, Debenhams, and French Connection.

    Last month, HoF, which is currently owned by China's Sanpower Group, confirmed plans to shut 31 of its 59 British stores through an increasingly controversial mechanism called a Company Voluntary Arrangement (CVA).

    The move would put roughly 6,000 jobs at risk.

    HoF employs about 5000 people directly, with a further 12,500 people working in fashion and beauty brand concessions in its stores.

    The £70m investment in HoF from C.banner, Hamleys' owner, is contingent upon the CVA being implemented.

    The C.banner deal is supposed to hand it a 51% stake in HoF.

    However, the plans have been rocked by a challenge in the Scottish courts from a group of landlords who are arguing that the restructuring plan imposes unfairly Draconian financial pain on them.

    HoF had informally asked store landlords to agree to big rent cuts earlier this year, before signing off plans to conclude a CVA before the June rent quarter day.

    If it collapsed, it would be the biggest retail failure for well over a decade, and would come during a tumultuous period for the high street, with jobs being axed at chains including Carpetright, Debenhams, Mothercare and New Look.

    The CVA mechanism offers no guarantee of revival, with Toys R Us UK crashing into administration just weeks after its deal was approved earlier this year, with more than 3,000 jobs lost as a result.

    Retailers have become casualties of a tough market characterised by rising costs combined with caution among British shoppers.

    HoF, one of the best-known names in the British retail industry, has been living a hand-to-mouth existence for some time, with its shareholders periodically providing it with multimillion pound sums to enable it to pay landlords and concession operators.

    Last year, it lost nearly £44m as pressure mounted on the business.

    The company is carrying ‎hundreds of millions of pounds of debt, including a £350m bond which is publicly traded.

    It is run by executive chairman Frank Slevin and Alex Wiliamson, who was brought in from the Goodwood Group last year.

    Last week, it responded to an enquiry from Sky News by saying that it had no need for short-term financing.

    A spokesman for Sports Direct did not respond to a request for comment.

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