The feared investor which owns Waterstones is plotting to back the founder of Matalan in his efforts to wrest back control of the discount retailer.

Sky News has learnt that Elliott Advisors is in talks with John Hargreaves about helping to fund an offer to buy the business, which is weighed down by hundreds of millions of pounds in debt.

If the discussions result in a successful offer, it would add Matalan to a portfolio of British companies backed by Elliott, which has become renowned as one of the world’s most prominent activist investors.

The firm owns stakes in businesses including Avant Homes, the housebuilder, Travelport and the bookseller Foyles.

It has also held stakes in public companies including pharmaceuticals giant GSK and Hammerson, the shopping centre owner, where it has agitated for management and strategic changes.

Matalan, which was founded by Mr Hargreaves in 1985, faces a deadline in January to refinance £350m in debt.

It also took a £60m loan from Bantry Bay – in which Elliott owns a stake – as it sought to strengthen its balance sheet ahead of what threatens to be a prolonged slump in consumer sentiment.

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Based in Liverpool, Matalan employs more than 11,000 people and trades from 230 UK stores.

It also operates an e-commerce platform and has more than 50 overseas franchise stores.

The company claims to have 11 million customers.

It was unclear this weekend what valuation any sale process would achieve against the current economic backdrop.

Mike Ashley, the Frasers Group tycoon, is also reported to be preparing an offer for Matalan.

Like many of its peers, the chain found its finances severely strained by the pandemic, prompting the Monaco-based Mr Hargreaves to provide substantial financial support.

In recent months, global inflationary pressures have impaired margins, while supply chain challenges have had an impact on stock availability.

Matalan warned during the summer that its “ability to successfully refinance our debts involves geopolitical, economic and market factors outside the direct control of the business”.

Mr Hargreaves recently stepped down after a brief return as Matalan’s chairman in order to participate in the bidding process.

The Hargreaves family is being advised by Lazard, while Teneo is handling the sale and Perella Weinberg Partners is advising the first-lien – or senior – lenders.

Elliott declined to comment.

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