Trainers-to-tracksuits retailer JD Sports Fashion (JD.) is being forced to sell Footasylum after the Competition and Markets Authority blocked the deal, insisting it could leave consumers worse off if JD were permitted to keep the business acquired opportunistically back in 2019.

JD’s executive chairman Peter Cowgill is fuming at the competition watchdog’s decision to force the unwinding of the acquisition, arguing that even after absorbing Footasylum into JD there still is plenty of competition in this sector, notably from shoe manufacturers Nike and Adidas, which are increasingly selling direct to consumers.

However, it is worth noting that Footasylum is a small part of JD’s overall business. It paid £90 million to rescue its struggling, smaller rival, a purchase price which seems small beer versus the £750 million-plus of pre-tax profit JD Sports expects to generate this year.

JD BITES BACK

The competition watchdog has concluded that the competitive threat from direct to consumer doesn’t extend to Footasylum and that JD would have ‘an incentive to worsen the offer in Footasylum to the detriment of both consumers and suppliers’.

Biting back, JD Sports said the decision to block the acquisition ‘defies logic’.

In fact, the FTSE 100 retailer pointed out this is the first time ever that the Competition and Markets Authority has decided ‘to block or remedy a deal between competitors where it found that there will be no “substantial lessening of competition” in relation to the acquiring business’.

JD is studying the report in detail and will ‘carefully consider its options accordingly’.

Cowgill commented: ‘The Competition and Markets Authority rightly concludes that, following the acquisition of Footasylum, JD would have no incentive to raise prices or worsen its offer as its most important competitors are the DTC operations of the international brands themselves.

‘However, the Competition and Markets Authority has then somehow concluded that the competitive threat from direct to consumer does not extend to Footasylum and that JD would have an incentive to worsen the offer in Footasylum to the detriment of both consumers and suppliers. We would suggest that the Competition and Markets Authority is in a minority of one in reaching this conclusion.’

THE EXPERT’S VIEW

Russ Mould, investment director at AJ Bell, commented: ‘The shoe market is well served by a range of retailers in the UK, so it does seem odd that the Competition and Markets Authority is being so stubborn. Quite often in these situations, the company being investigated would be forced to sell some of the acquired shops in certain geographical locations, but not necessarily the entire business.

‘JD Sports is unlikely to let the Competition and Markets Authority have the final word and it now seems that Cowgill is on a personal mission to emerge victorious. It’s now a fight of principles and not letting the Competition and Markets Authority set the precedent for future cases of a similar ilk.’

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Issue Date: 04 Nov 2021