By Scott Wright
SHARES in JD Sports rose nearly three per cent after it clashed with the competition regulator over its acquisition of fellow footwear retailer Footasylum, declaring that the provisional findings from the deal investigation are “fundamentally flawed”.
JD Sports, which has around 375 stores in the UK, reacted furiously after the Competition and Markets Authority (CMA) judged that the deal could leave consumers worse off in store and online following its six-month investigation.
It warned that forcing JD Sports to sell Footasylum may be the only way of addressing the competition concerns it holds over the £90 million deal, which was approved by shareholders in March last year.
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The CMA claims that a loss of competition from the merger could result in fewer discounts for shoppers, for example at major clearance sales or Black Friday promotions, as well as lower-quality customer service and less choice in stores and online. It began its phase two investigation after its initial phase one review examination raised competition concerns over the deal.
While the watchdog acknowledged that Footasylum is smaller than JD Sports, it declared that its detailed investigation provisionally found the two retail businesses compete closely, adding that surveyed customers indicated there are only a small number of other retailers that they would consider buying from.
But the findings, which the CMA said follow interviews with more than 10,000 customers of the two companies, drew an angry response from JD Sports.
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Chief executive 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.”
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Despite the tone of JD Sports’ comments, investment expert Russ Mould of stockbroker AJ Bell said the share price reaction suggested investors are taking the news that the Footasylum deal could be abandoned “in their stride”. He also speculated that scrapping the deal might ultimately be good for JD Sports.
Mr Mould said: “To loud howls of protest from JD, the Competition and Markets Authority has intervened, suggesting the deal would be bad for shoppers and provisionally indicating it is prepared to block it.
"This might end up being a blessing in disguise for JD Sports. Although it apparently targeted a slightly older demographic, Footasylum never looked much of a prize, even if the involvement of JD Sports’ founders in the venture made it a logical fit.
"Footasylum had endured a spell on the stock market which was painful as it was short before JD stepped in last March. Unlike its larger counterpart Footasylum had found life on the high street a struggle and being forced into selling stock at big discounts won’t have done much for the integrity of the brand.”
Shares in JD Sports closed up 27p, or 3.19%, at 873p.
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