11th Feb 2020 08:51
(Alliance News) - The Competition & Markets Authority on Tuesday said the proposed acquisition of Footasylum Ltd by JD Sports Fashion PLC would substantially lessen competition in the UK, prompting JD Sports to brand the CMA's findings as "fundamentally flawed".
Shares in FTSE 100-listed JD Sports were up 2.7% at 869.20 pence each in London.
In October, the UK regulatory body had referred the acquisition for a more in-depth Phase 2 investigation after it said it believed that the GBP90 million deal could lead to substantially less competition in the sportswear market where the two firms operate.
On Tuesday, the CMA said that the in-depth Phase 2 investigation has provisionally found that the deal lessens competition nationally, adding that UK shoppers could see fewer discounts, receive lower quality of customer service, and have less choice in stores and online.
"The CMA's current view is that blocking the deal by requiring JD Sports to sell the Footasylum business may be the only way of addressing these competition concerns," said Kip Meek, Chair of the independent inquiry group leading the investigation.
The acquisition was completed in May of last year, and Footasylum shares subsequently were delisted in London.
However, JD Sports Fashion said Tuesday that the provisional findings of the competition watchdog are "fundamentally flawed" and demonstrate a "complete misunderstanding of the market".
The sport and leisurewear retailer said the CMA failed to take into account the rapidly changing nature of the market. It added that it believes that the CMA has lost sight of its objective of protecting consumer interests.
Footasylum has a less than 5% market share and will contribute less than 2% of the company's earnings in the year to January 2020, JD Sports argued.
"The competitive landscape described by the CMA is one which neither I, nor any experienced sector analyst, would recognise. The findings do not reflect the objective evidence, with excessive weight being placed on surveys asking hypothetical questions of a small sample of selected customers rather than assessing the reality of how consumers actually shop on a national scale," said Executive Chair Peter Cowgill.
"We remain convinced that a combination of the two businesses would provide significant long-term benefits to customers, colleagues and brand partners, while maintaining Footasylum's presence on the high street as the music-inspired casual retailer which it is today."
The CMA said it has set out potential options for addressing its provisional concerns. It is now asking for views on its provisional findings by March 3 and possible remedies by February 25, and will assess all evidence provided before making a final decision.
"Its current view is that blocking the deal by requiring JD Sports to sell the Footasylum business may be the only way of addressing these competition concerns," the CMA warned.
It noted the deadline for its final report has been extended to May 11.
By Ife Taiwo; [email protected]
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