– Retailer offloads smaller trainers chain for £37.5 million
– Sale represents near-60% loss on investment
– Régis Schultz waiting in wings as new CEO
Shares in JD Sports Fashion (JD.) firmed 0.7% to 130.5p after the sportswear giant agreed to sell Footasylum to German private equity investor Aurelius for £37.5 million, a deal that brings JD’s protracted spat with the UK Competition & Markets Authority (CMA) to a close.
The athleisure giant acquired smaller rival Footasylum back in March 2019 for £90.1 million and has since been the subject of investigations and orders related to the takeover from the CMA, which blocked the deal on ground competitions and ordered JD Sports to sell the footwear seller.
In February, JD Sports was fined £4.3 million for breaching an interim order issued by the CMA during an in-depth phase two merger investigation.
The competition watchdog said JD Sports and Footasylum had exchanged commercially sensitive information when outgoing executive chairman Peter Cowgill was caught on camera meeting his Footasylum counterpart, and former JD Sports CEO, Barry Bown in a car park in Bury in the summer of 2021.
In today’s brief statement, JD Sports said it has ‘cooperated with the CMA throughout the divestment process, including ensuring that the purchaser was acceptable to the CMA and met certain key criteria set out within the final undertakings’.
JD Sports’ interim chief executive Kath Smith said: ‘I would like to sincerely thank the teams at Aurelius and Footasylum who worked collaboratively with the CMA to agree this transaction’, which is expected to complete in the coming weeks.
‘Based on the bare facts alone, JD Sports’ acquisition of Footasylum has been a costly mistake,’ commented AJ Bell investment director Russ Mould.
‘Forced to sell by the competition regulator, it has made a pretty staggering loss of nearly 60% on an investment made just three years ago.
‘However, the real costs run greater than just the financial. Events surrounding the doomed transaction contributed to the departure of its executive chairman Peter Cowgill, after a highly successful tenure, and damaged the company’s reputation for good governance.’
SEND FOR SCHULTZ
Though the wider retail sector is wrestling with inflation and weakening consumer demand, JD Sports recently expressed confidence (22 July) that its headline profit before tax and exceptional items for the year to January 2023 would match last year’s record £947.2 million haul after delivering 5 % like-for-like sales growth in the first five months of the new fiscal year.
JD Sports’ positive performance demonstrates athleisure is still in demand and younger customers, who may live at home or rent from a landlord picking up some of the slack from rising bills, can still find the money for must-have sneakers or essential gym kit.
The retailer is rumoured to have lined up one-time B&Q executive and Darty boss Régis Schultz as its new CEO to take over from Cowgill, who dramatically exited in May amid corporate governance concerns.
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Ian Conway) own shares in AJ Bell.
Issue Date: 01 Aug 2022