JJB Sports fined for misleading market over deal costs

THE City watchdog has hit North West retailer JJB Sports with a £455,000 fine for failing to disclose the true cost of two acquisitions.

The deals, in December 2007 and May 2008 for the loss-making Original Shoe Company and Qubefootwear, were made under the leadership of chief executive Chris Ronnie, who has since left the business.

In a statement today the Financial Services Authority said JJB’s failure to tell investors that it had paid £15m not £5m for Original Shoe and £6.47m not £1 for Qube had “led to a false market in JJB shares for over nine months.”

The FSA said it would have hit the beleaguered Wigan-based company with a fine of £650,000, but for a number of factors, including the company’s co-operation with the investigation and fact that the “entire executive board and nearly all of JJB’s non-executive directors have changed since the events in question”.

Alexander Justham, FSA director of markets, said: “JJB’s failure to disclose information about the two acquisitions denied investors the ability to fully understand its financial position and make informed investment decisions.

“The repeated failure to disclose this information showed a lack of regard for the market, the disclosure rules and investors.

“Timely and accurate disclosure of inside information is a fundamental component of a properly functioning securities market and is a key focus of the FSA in enforcing the disclosure regime around listed companies.

“The action we have taken shows it is unacceptable to tell only part of the story whilst leaving material facts unannounced in the background.”

JJB did not tell the City that the OSC deal included payment of £10m for stock, while with Qube, the company failed to disclose that, as part of the acquisition, it had agreed to settle Qube’s overdraft of £6.47m prior to completion.  

In a statement the FSA said: “In both cases the cost of the acquisition was inside information and should therefore have been disclosed to the market as soon as possible.

“At the relevant time the cash positions of listed companies were the subject of increasing investor focus and JJB’s failure to disclose gave a false impression of the costs of OSC and Qube and of the impact of those acquisitions on the true nature and costs of JJB’s strategy.

“On 26 September 2008, JJB published its 2008 Interim Results which, for the first time, disclosed the true costs of the OSC and Qube acquisitions.

“By this time, it had been necessary for JJB to arrange a short-term bridging facility to shore up its financial position, and the 2008 interim results also noted uncertainties about JJB’s ability to continue as a going concern. On the day the results were published, JJB’s share price fell by 49.5% from 104p to 52p.”

Shares in JJB fell 2% to 4.5p on the news.

In a statement JJB said: “The investigation covered a period … when the company was under an entirely different management team and prior to the company’s restructuring.”

It said the fine would be paid in installments over the next six months.

“No further investigations into the company by the FSA are ongoing, and the company welcomes the finality brought by the conclusion of this investigation,” it added.