When is it beneficial for two companies to work in unison?
Business is driven by profits and the potential to see a return on investment, which is why many large companies often choose to work together if the circumstances make sense.
Usually, buying shares in other companies promotes opportunities for companies to mutually share products and services, increasing footfall in stores and boosting potential profit.
Businesses that are able to keep trading and producing sufficient turnover are a benefit to the economy as a whole.
A great example of two businesses restructuring to join forces for mutual benefit could be the recent acquisition of shares in Debenhams by Mike Ashley, the owner of Sports Direct.
While the £45 million deal is still in its infancy, shares in both companies have improved and there is clearly a reason for the move.
Billionaire Mr. Ashley was widely reported to be interested in House of Fraser last year and Debenhams is certainly a similar operation.
A potential buyout
Some speculation has suggested that he could be set to buy out Debenhams, while others have suggested it could be a move to allow some of Sports Direct’s own fashion brands to expand.
It is not the first time that Sports Direct has acquired stakes in other retail companies, having invested in JS Sports, JJB and Blacks in the past – with mixed success.
The company also has a stake in Umbro, the official kit-maker for the England football team, and has experienced success by selling replica kit.
Mr. Ashley also acquired a stake in Adidas, only to sell it again eight weeks later at significant financial gain.
Coming to the rescue
Debenhams has been reported to be struggling in the last few months, so the deal with Sports Direct could spark new life into the company.
The end of 2013 saw shares drop dramatically and large-scale drops in profit, while corporate restructuring methods were also rumoured to be a possibility.
Another option could see Sports Direct use the 156 Debenhams stores in the UK to operate a ‘Click and Collect’ service – something the sport’s retailer does not currently provide.
Such a move would see the footfall in Debenhams increase, while Sports Direct could market goods for collection which is proving to be a popular option in the retail sector.
Should Mr. Ashley keep his stake in Debenhams for a considerable period of time, the two companies could provide a base from which both can benefit.
By Phil Smith