Sports Direct swaps Debenhams shares for options Sports Direct has entered into an option contract that would potentially allow the Mike Ashley-controlled retailer to take a stake of nearly 7 per cent in Debenhams. The sportswear retailer revealed on Thursday it had sold its 4.6 per cent equity stake in Debenhams four days after disclosing that it had acquired it. But in a complex piece of financial engineering, Sports Direct will retain an exposure to the retailer. It has sold a put option that if exercised will give the counterparty the right to sell a 6.6 per cent stake to Sports Direct. If the share price has dropped below the exercise price, Sports Direct can also choose to pay the difference in cash rather than take the shares. Sports Direct declined to reveal the exercise price agreed. The option can be exercised between one year from now and March 2015. A person close to the company said: "It's a smarter way to finance the stake. You get a bigger interest, at a reduced rate. Instead of an equity stake, they have the option, which could convert if the wind blows in their direction. The company said its "maximum exposure" under the option deal was worth about £64m. Mr Ashley, who owns about two-thirds of Sports Direct as well as Newcastle United Football Club, surprised the retail world on Monday when it emerged that Sports Direct had bought a 4.6 per cent stake in Debenhams, which had a poor trading period over Christmas. Buying stakes in rival retailers has been a hallmark of the discount sports retailer. Sports Direct has, in the past, taken stakes in now-deceased retailer JJB, the German sportswear company Adidas and high-street rival JD Sports. Jeff Blue, a former Merrill Lynch investment banker who is now strategic development director at Sports Direct, took a lead role in developing the latest option deal. The stakebuilding moves by Sports Direct came after a tumultuous period for Debenhams, which issued a profit warning and parted company with its finance director after weak Christmas sales. People close to the situation said that Mr Ashley still plans on working with Debenhams "in the near future," despite the fact that Sports Direct no longer has a direct equity stake in the department store. "They look forward to meeting with Debenhams and look forward to meeting them in the near future," they added. Debenhams declined to comment. Shares in the department store group edged down 1.2 per cent to 82p. Put options explained A put option is the ability to sell shares in a company over a specific period and at a specific price. The buyer of the option is the one who decides whether to exercise it. In this case, Sports Direct is the writer of the option. It receives a premium payment but has no control over whether the shares change hands. The buyer, who has not been publicly identified, is the one who makes the decision. If Debenhams" share price falls significantly, Sports Direct would either be forced to become a significant shareholder - at a loss - or pay the party on the other side of the option in cash. If the share price rises, the buyer would probably not exercise the option and Sports Direct would not end up with the shares. As a result, for the period of the option, Debenhams will live with the prospect that Sports Direct will become a large shareholder if its share price falls.