Shares in sportswear retailer JD Sports Fashion (JD.) cheapened 1.4% to 498.1p after the Competition and Markets Authority (CMA) blocked the trendy trainers-to-tracksuits purveyor’s £90m Footasylum acquisition.
The CMA ruled that Footasylum, which has been operated as a standalone business through the CMA regulatory investigation, will need to be sold.
JD Sports is now considering whether to pursue an appeal against the decision, arguing that the CMA has failed to properly understand the competitive trends in the industry, particularly at a time when the coronavirus pandemic is leaving many retailers on the ropes.
SURPRISING RULING
In a surprising ruling, the CMA has taken a tough stance and prohibited JD Sports Fashion’s takeover of Footasylum, a far smaller rival failing as a standalone business.
How JD Sports is expected to sell the business given the current retail environment, with coronavirus-induced lockdowns reshaping the retail industry and much of the high street closed, is anyone’s guess.
COWGILL COMES OUT FIGHTING
JD Sports’ major rival Mike Ashley will be delighted by the decision, as the CMA has essentially sided with the Sports Direct argument that the JD Sports-Footasylum tie-up would lessen competition among key must-have brands like Nike and Adidas.
Unsuprisingly, JD Sports’ executive chairman Peter Cowgill is incensed by the outcome of the investigation.
He stridently disagrees with the CMA’s decision, which he says ‘continues to rely on an inaccurate and outdated analysis of the UK sports retail competitive landscape, and is underpinned by outdated and flawed customer surveys.’
Cowgill continued, ‘At the same time, incredibly, the CMA has been taken in by the self-serving testimony of one notoriously vocal competitor, who has made numerous public announcements confirming their ongoing investment in their elevation strategy and who has blatantly participated in the process for their own commercial interests rather than for the benefit of consumers.
‘When the CMA published its provisional findings in February, we said at the time that they demonstrated a complete misunderstanding of our market to an alarming extent.
‘Today, and equally frustratingly, in the midst of a global pandemic and with the UK high street in a state of complete lockdown, the CMA’s final decision is even more absurd.’
THE SHORE CAPITAL VIEW
‘We thought that the CMA’s role was to protect consumers,’ analysts at Shore Capital commented.
They added, ‘In our view, this looks like a heavy-handed regulatory approach and may have widespread implications for future retail M&A. Sports retailing is a global industry with third party brands competing for consumer’s share of spending.
‘Given the context of Covid-19 we can not see a queue of buyers forming to purchase Footasylum, aside perhaps from Mike Ashley’s Sports Direct.
‘Whilst today’s CMA announcement is disappointing for JD Sports, we still highlight the international growth prospects of the company, particularly in the US, together with a strong balance sheet and tight stock and cash controls in the business.’
