CMA warns JD Sports’ Footasylum takeover could increase prices

CMA warns JD Sports' £90m takeover of Footasylum could lead to
The CMA launched probe on JD Sports’ £90m takeover offer of Footasylum in July.
// CMA says it is “concerned” about JD Sports’ £90m acquisition of Footasylum
// The competition regulator warns it could lead to “higher prices” & “worse choice” for customers
// JD Sports declared its £90m offer of Footasylum unconditional in April
// CMA said it would escalate its probe to phase two unless JD Sports provides a solution to address concerns

The UK’s peak competition regulator has warned that JD Sports’ £90 million takeover of smaller rival Footasylum could lead to “higher prices” and “worse choice” for customers.

The CMA said it was “concerned” about the deal, which was agreed earlier this year.

The regulator believes the takeover could result in a “worse shopping experience for customers” as it brings together two of the UK’s largest sportswear retailers.

The CMA said it would escalate its probe into the takeover, which it launched in July, to a Phase II investigation unless JD Sports provided a solution to address the concerns of lessening competition.

“JD Sports is already by far the largest player in the growing sports fashion sector, so any deal that results in it buying up one of its closest competitors could clearly give cause for concern,” CMA senior director Colin Raftery said.

“Our investigation has shown us that JD Sports and Footasylum have been competing strongly across the UK, with a sports fashion offering that few other retailers are able to match.

“That’s why we’re concerned this deal could lead to higher prices, less choice and a worse shopping experience for customers.”

JD Sports is the UK’s largest sportswear retailer after recently overtaking Sports Direct to become the biggest on the high street.

The eponymous parent company, which recently entered the FTSE 100 for the first time, operates more than 400 stores and also owns other retail brands such as Size?, Tessutti, Go Outdoors and Blacks.

Footasylum, which first opened in 2006, has 70 stores in the UK and generated revenues close to £200 million in 2018.

JD Sports defended its takeover, stating it believes there will be “significant operational and strategic benefits”.

“We continue to believe that Footasylum would be a positive addition to the group, bringing a differentiated customer demographic and fashion-led product range that is complementary to our existing business,” JD Sports executive chairman Peter Cowgill said.

“Our discussions with the CMA are ongoing as we consider whether to proceed to phase two or if acceptable remedies can be agreed at this stage.

“We look forward to working constructively with the CMA in this regard and will provide further updates in due course.”

JD Sports first announced in in March that it would acquire Footasylum and the deal was greenlit by shareholders by the next month.

JD Sports had already owned a stake in Footasylum, having bought 19 per cent of its issued share capital in February.

At the time, the retailer told investors that it would not purchase Footasylum outright.

Nonetheless, a £90 million deal for the remaining Footasylum shares was made and the acquisition subsequently became unconditional on April 12.

By May, JD Sports had snapped up almost all of the shares in Footasylum.

The takeover followed a slump in Footasylum’s value after it suffered two profit warnings last year, blaming tough trading conditions on the high street.

Meanwhile, JD Sports has seen revenues surge over the past year, driven by its acquisition drive which included Finish Line in the US and Pretty Green, the fashion retailer founded by former Oasis frontman Liam Gallagher, which it bought out of administration.

Until a final decision is made by the CMA, JD Sports and Footasylum are not permitted to take actions to integrate the two businesses.

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