26th May 2022 11:02
(Alliance News) - JD Sports Fashion PLC's surprised analysts with the timing of its decision to part company with its executive chair.
Late Wednesday, the retailer said Peter Cowgill left the role with immediate effect. Back in July of last year, the company bowed to shareholder pressure over its corporate governance, agreeing to split its chair and CEO roles.
Cowgill had served as both executive chair and CEO of JD Sports, since taking up the latter position in 2014.
Analysts commented that the timing of the separation was a surprise. JD Sports said that as a result of an ongoing it decided to expedite the separation of the roles.
Analysts at UBS said the "time has been shortened". The Swiss bank expected news on the separation at July's annual general meeting.
JD Sports shares fell 2.3% to 109.40 pence each in London on Thursday morning.
"We expect a negative share price reaction today and anticipate the shares could remain under pressure until after FY22 results are reported (mid-June) and the announcement of a new CEO," UBS added.
UBS rates JD Sports at 'buy' with a 210p price target. The stock has fallen 6.1% on Wednesday.
The athletic apparel retailer said non-executive directors Helen Ashton and Kath Smith will assume the roles of interim non-executive chair & interim chief executive officer, respectively.
Further, JD said the process to recruit a CEO remains ongoing and it will also begin the search for a new non-executive chair.
Under Cowgill, JD has enjoyed a marked upturn in fortunes.
However, corporate governance concerns began to cast a dark cloud, particularly the dual role of chair and CEO.
In addition, JD Sports has faced regulatory scrutiny.
Back in February, JD Sports and one-time acquisition target Footasylum were fined nearly GBP4.7 million for collective breaches of an interim order issued by the UK's Competition & Markets Authority during an in-depth phase two merger investigation.
JD Sports acquired Footasylum back in March 2019 for GBP90.1 million, but the deal was subject to CMA investigations and orders related to the buy. In November last year, the CMA ordered JD Sports to sell the footwear seller to address concerns about competition and to protect consumers.
The CMA imposed an interim order in May 2021 to stop the companies from "further integration" and ensure they remained competitors during a probe of the tie-up.
The order required the CMA to be immediately notified if any information was exchanged.
The CMA said JD Sports and Footasylum had "severely deficient safeguards in place - so much so that they created an environment where information exchanges were almost inevitable". The CMA alleged two meetings took place in July and August of 2021, where the two chief executive officers, Barry Brown of Footasylum and Cowgill of JD, exchanged commercially sensitive information - on topics such as contracts, planned store closures, stock issues and financial performance. The CMA said it was not notified.
JD in response said any exchange of information was "limited" and "inadvertent" but conceded it was not reported to the CMA.
JD Interim Chair Ashton on Wednesday hailed the firm's growth under Cowgill but said internal governance infrastructure did not grow at the same pace.
AJ Bell analyst Russ Mould commented: "Coming just five months after a GBP5 million fine was issued by the regulator it appears JD is keen to get its ducks in a row and finally address corporate governance concerns by splitting the role of CEO and chair.
"There are reports Cowgill opposed some of these changes and investors must decide whether the apparent governance improvements were worth losing such a successful leader of the business."
By Eric Cunha; [email protected]
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