High street sports retailer JJB Sports has confirmed that it is in preliminary talks with rival firm JD Sports regarding a possible takeover.
JJB is currently valued at £29 million, with US hedge fund Harris Associates its majority stakeholder.
The possible deal comes after a very difficult year for JJB which has seen it fined by the Financial Services Authority and post increasingly disappointing sales which have caused it to breach its credit agreements.
JD in comparison is one of the best performing retailers in the sector, with group sales increasing 2.5 per cent over the difficult Christmas period.
A statement from JJB stated: “JJB Sports plc confirms that it is in initial discussions with JD Sports Fashion plc in relation to a potential offer.
“The highly preliminary nature of these discussions is such that there can be no certainty that any offer will be made or as to the terms of any offer.”
It is understood that JJB is continuing with its previously announced £31.5 million fundraising, at 5p a share, which should provide sufficient working capital until the end of April.
As Retail Gazette recently investigated, JJB is struggling in an increasingly tough market sector and JD faces a number of challenges if it is going revive the ailing business.
Sanjay Vidyarthi, Retail Mid Cap analyst at Espirito Santo, commented: “The rationale for consolidation is understandable, and JD has made several successful acquisitions in the past, but this looks very high risk, not just in terms of JJB’s precarious funding position, but also the execution risk of turning the trading business around.”
“We think Sports Direct could be the winner out of any turmoil here.”