JD Sports wins £90m Footasylum takeover appeal

Peter Cowgill

Sports and athleisure retailer JD Sports has won its appeal over its proposed £90m takeover of Footasylum.

The Competition Markets Authority (CMA) ruled against the deal in May on the basis that shoppers would be worse off.

JD executive chairman Peter Cowgill described the ruling at the time as “absurd”.

The CMA ordered JD Sports to sell Rochdale-based Footasylum, and in August fined JD Sports and its biggest shareholder, Pentland Group, £300,000, as part of an enforcement order linked to the takeover.

But this afternoon, JD Sports Fashion confirmed that the Competition Appeal Tribunal has quashed the CMA’s decision to prohibit the group’s acquisition of Footasylum.

As a result, the case will now be remitted to the CMA for full reconsideration and the CMA’s previous order, which would have forced the group to divest the Footasylum business, will be cancelled.

Peter Cowgill said today: “We have always maintained that this merger would provide significant long-term benefits to customers, colleagues and brand partners, and so we are very pleased with the Competition Appeal Tribunal’s judgment today.

“The entire case will now go back to the CMA for re-consideration and we look forward to presenting further evidence which demonstrates the true extent to which the competitive landscape has evolved, in particular as a result of the unprecedented challenges caused by the COVID-19 pandemic.”

The two businesses originally agreed the takeover in March last year.

JD Sports said it expected the enlarged business would be able to take advantage of business opportunities which were not readily available to either JD or Footasylum on a standalone basis.

Footasylum was considered a strategic acquisition as it retails “on-trend” product ranges predominantly aimed at 16- to 24-year-old fashion-conscious customers and are sourced from an extensive stable of third party and own brands.

In April the deal was declared “wholly unconditional” after JD received acceptance for its 82.5p per share offer from 78.2 million Footasylum shareholders, representing around 75% of issued share capital.

But in September the CMA stepped in, saying the deal could be bad for shoppers.

The CMA said it was concerned that the loss of competition brought about by the merger could result in a worse deal for customers, both in-store and online, through higher prices, worse choice in stores or reductions in service quality.

A CMA spokesperson said: “Sportswear is currently a significant influence on fashion trends, with sports styles replacing traditional casualwear, particularly among younger shoppers.

“Retailers carefully curate the selection of brands that they offer, and develop attention-grabbing offerings in-store and online, in order to compete for customers.”

The CMA’s initial investigation found that the merger could remove one of JD Sports’ closest competitors.

Then, in February this year, JD Sports said the CMA’s provisional findings did not reflect the intensive and dynamic competitive reality of the UK sports retail market today, where a large number of retailers selling third-party brands compete not only with each other, but also with major online pure-players and, most importantly, the increasingly powerful direct to consumer (DTC) operations of the international brands themselves.

It said the CMA had failed to recognise and accept clear evidence of the rapidly-changing nature of this market, which has materially altered even during the period of the CMA’s review.

Peter Cowgill said: “The CMA’s provisional decision is fundamentally flawed and demonstrates a complete misunderstanding of our market to an alarming extent, given its six-month review.

“The competitive landscape described by the CMA is one which neither I, nor any experienced sector analyst, would recognise.

“Just take a walk down any major UK high street or search for Nike or adidas trainers on Google and you can see for yourself how competitive this marketplace really is.

“The CMA’s provisional findings do not reflect the objective evidence, with excessive weight being placed on surveys asking hypothetical questions of a small sample of selected customers equivalent to less than 25% of the footfall of one JD store in Manchester for one week, rather than assessing the reality of how consumers actually shop on a national scale.”

And in May this year JD Sports reacted with fury when the CMA blocked the acquisition of Footasylum and ordered it to sell the business.

JD Sports warned the verdict could lead to job losses, particularly in the North West, and said it was considering an appeal.

Mr Cowgill said: “We fundamentally disagree with the CMA’s decision, which 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.

“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.

“Since the CMA launched its review 12 months ago, the competitive landscape in which we operate has changed beyond recognition.

“Further, since the outbreak of COVID-19, competition has not lessened; it has become even more intense as the consumer transition to online has accelerated at a meteoric rate.

“We are astounded that the CMA has failed to recognise that this isn’t just a short-term blip, but rather a long-term societal and behavioural change in how consumers shop.”