Sports Direct International Sports Direct shares tumble as it races to find new auditor
Retailer talks to government about stock market rules after Grant Thornton quits
Shares in Sports Direct have tumbled to their lowest level since 2011 after its auditors quit, leaving the retailer with less than a month to find a replacement.
The share price slumped more than 11% to 214p on the news, valuing the company at just over £1bn. Five years ago shares were changing hands at 922p and the retailer was valued at more than £5bn.
Wednesday’s slump slashed the value of Mike Ashley’s 62% stake in the business by almost £90m.
Grant Thornton, which has audited Sports Direct since it floated on the Stock Exchange in 2007, said it would stop working with Ashley’s business following its annual general meeting on 11 September.
The announcement comes a day after Sports Direct published its annual report in which Ashley, the chief executive, proposed that Grant Thornton be reappointed by shareholders at the meeting.
The resignation puts Sports Direct in a difficult position as Ashley said in the report that the scale and complexity of the company means that only one of the “big four” accounting firms – Deloitte, PwC, KPMG and EY – would be able to cope with its auditing requirements.
However, he admitted that “early discussions” with each of them over taking on the audit responsibility for Sports Direct had fallen flat. Last month Sports Direct stunned investors by repeatedly delaying its annual results and eventually publishing them after the market had closed on a Friday evening. The late publication included the bombshell revelation of a €674m (£605m) tax bill from the Belgian authorities.
Ashley said Deloitte could not take on the audit work because it handles Sports Direct’s tax compliance and advisory work, but he seemed unimpressed by the explanations given by the other big firms as to why they could not take on Sports Direct. KPMG cited conflicts of interest with its client base, something Ashley said he believed was not an “insurmountable” issue. EY, he said, had shown “some reluctance” because it ran the House of Fraser administration process, in which Ashley bought the business for £90m. Ashley said PwC has cited “a reluctance to engage based on our ownership structure”.
The auditing business is under pressure to raise its standards after a series of high-profile collapses in recent years, including BHS, Carrillion and the £94m black hole discovered in the accounts of Patisserie Valerie.
Ashley criticised the “big four” for being “more than happy” to take on companies such as Carillion, which he said supposedly had good governance, while Sports Direct offers “transparency, true and fair accounts, and realistic communications and expectations to the market”.
In a joint statement with Grant Thornton, Sports Direct reiterated that it still aimed to appoint one of the big accountancy firms despite initial rejections.
“Sports Direct has a longer-term aim of looking to engage a big four auditor in the future,” the companies said. “In line with the audit profession as a whole reviewing their client portfolios for, amongst other reasons, audit profitability, during a period of increased regulatory scrutiny, GT’s review of its client portfolio alongside SD’s future intentions on engagement of a big four auditor has led to a decision by GT to not seek reappointment as SD’s auditor.”
Sports Direct has now asked the government what its options are as it faces breaking stock market rules if it cannot appoint an official auditor at its annual meeting, according to the Financial Times.
The business secretary, Andrea Leadsom, has the power to appoint an auditor to a quoted company if it cannot do so itself. If Sports Direct fails to find an auditor it will be the first major publicly listed company to do so.
It emerged at the end of last month that Grant Thornton had told the Financial Reporting Council, the audit watchdog, of its plans to resign as Sports Direct’s auditor. However, an official announcement from Sports Direct was only released to the stock market on Wednesday.
The FRC is investigating Grant Thornton over why it did not disclose payments made by Sports Direct to a company run by Ashley’s brother as a related party transaction in the accounts. The FRC’s audit quality review team is also looking into how Grant Thornton valued Sports Direct’s holding in Debenhams before its near collapse in June.
Neil Wilson, the chief market analyst at Markets.com, said: “Investors have reacted to the latest sign of the complete and utter lack of control at the top.”
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