Mike Ashley faces legal row over House of Fraser stake

The company said pre-emption rights attached to the stake mean Sir Tom should have offered the shares first to the company’s other investors, who include Karen Millen founder Keith Stanford, Lloyds Banking Group and chairman Don McCarthy.

“House of Fraser has noted the share sale by Sir Tom Hunter to Mike Ashley. We have sent legal letters to both parties, reminding them of the proper procedures to transfer shares, which have not been followed,” a spokesman for the retailer said.

“This situation has no impact on our plans to sell to Sanpower Group and we will be making an announcement in due course.”

However, Sir Tom retorted: “We have received the letters, our lawyers have responded and we are entirely comfortable with our position”.

A person close to the retailer said that Sir Tom told the board he had sold his shares to Mr Ashley three days after the House of Fraser board agreed the Sanpower deal.

The key to House of Fraser’s argument is that Sir Tom did not follow the rules of pre-emption rights, however people close to the situation said that he had offered them several times to House of Fraser’s other shareholders. It is understood he most recently offered them to Mr McCarthy during the early stages of talks with Sanpower.

Sports Direct will be under pressure to make a stock exchange announcement on Monday confirming the share deal. It is not yet known what the sports tycoon intends to do with his stake as he has been courting the retailer for two years.

Sports Direct shareholders last week rejected plans to pay out £73m of shares to Mr Ashley and he is likely to rouse investor ire for using the company’s cash for another opaque move. He baffled the City earlier this year with a complex 6.6pc put option in Debenhams.

In another twist, House of Fraser’s articles of association include “drag and tag provisions” which means the Chinese could eventually force Mr Ashley to sell them his 11pc stake.

“Drag and tag provisions allow a proposed buyer of a controlling stake in a company force remaining minority shareholders to sell their shares to him or her at the same price and, in turn, the minority can force the buyer to make them an offer on the same terms”, Adam Bogdanor, a partner at international law firm Berwin Leighton Paisner LLP, commented.

People close to the process have commented that the Chinese will have to pay a premium to convince Mr Ashley to sell his shares.

The wrangling between House of Fraser and Sir Tom comes despite the department store still failing to formally announce the deal. Today is a public holiday in China so a statement is not expected until Tuesday, despite photographs of Sanpower’s press conference on the deal being widely circulated

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