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”.
Maplin, Toys R Us and Jacques Vert have all collapsed in recent months, but several retailers and restaurant groups are facing financial problems and are trying to close stores or negotiate rent cuts.
Gourmet Burger Kitchen: The upmarket burger chain wants to close 17 of its 85 restaurants via an insolvency process known as a company voluntary arrangement (CVA)
House of Fraser: The department store chain is expected to close about 12 stores after being bought out of administration by Mike Ashley. It had agreed a CVA under which 31 stores were to close, but this lapsed on administration.
Homebase: The DIY chain is closing at least 42 stores after completing a CVA organised by new owner Hilco. The restructuring expert bought the DIY chain for £1 from Australia's Wesfarmers who botched an attempt to bring its Bunnings chain to the UK.
Poundworld: The discount retailer has closed all its 355 stores, with the loss of 5,100 jobs after falling into administration in June.
Cau: The owner of the Gaucho and Cau steakhouses fell into administration in July leading to the closure of all 22 Cau restaurants, with loss of 750 jobs. The groups lenders have since bought the 16 Gaucho outlets.
Mothercare: The chain is closing 60 of its 137 outlets after agreeing a CVA in May. Additional closures in July mean 900 jobs will be lost.
Carluccio's: The Italian chain secured a CVA to close 30 of its 99 restaurants in late May.
New Look: The chain is closing 85 stores in a restructuring plan announced earlier this year. Its chairman, Alistair McGeorge, said the future of a further 39 stores was in doubt as talks with landlords continued.
Carpetright: The retailer obtained a CVA in April to close 92 of its 409 UK stores in September with the loss of about 300 jobs.
Prezzo: In March the Italian-themed restaurant group secured a CVA to close 94 of its 300 restaurants, with the loss of 500 jobs. Rent cuts were agreed on a further 57 locations.
Jamie’s Italian: The chain closed six locations in 2017 and this year agreed a CVA to close about a third of its 35 loss-making outlets.
Byron: The upmarket burger chain is closing up to 20 of its 67 restaurants after a CVA agreed in January.
Debenhams: The under-pressure department store chain has said it could close up to 50 of its 165 stores stores and wants to get rid of space at 30 more by bringing in gyms and other services.
M&S: The high street stalwart wants to close 100 outlets – a third of its main stores by 2022 as part of a 'radical transformation' plan.
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.”