CMA blocks JD Sports acquisition of Footasylum

(Sharecast News) - The Competition and Markets Authority has blocked JD Sports Fashion's acquisition of Footasylum after finding it would leave shoppers worse off.
Following an in-depth Phase 2 investigation, the CMA said the deal would lead to "a substantial lessening of competition nationally". This would leave shoppers with fewer discounts or receiving lower quality customer service.

JD agreed to buy struggling Footasylum last March for ?90m.

It said the decision "materially fails to take proper account of the dynamic and rapidly evolving competitive landscape in which we operate, as well as the long lasting - and likely permanent - impact that Covid-19 has had on our industry, which may never return to its pre-merger state, to the particular detriment of smaller retailers like Footasylum".

It noted that even before the impact of the pandemic, the UK sports retail market was "materially different today than when the CMA instigated its review 12 months ago".

"Additionally, the CMA's conclusion becomes even more difficult to comprehend in the context of Covid-19 and the seismic impact it has had on the current UK retail environment; not to mention the enduring challenges that will exist beyond the current lockdown as a result of social distancing and weakened consumer confidence."

The CMA said it was obvious that coronavirus meant retailers were facing "uncertain and challenging" trading conditions and that it had considered how this might affect competition concerns surrounding the deal.

"While it is significantly affecting the sector, the CMA has not found evidence that the impact of coronavirus would remove its competition concerns. However, the CMA does believe that the continuing uncertainty means that JD Sports should be allowed sufficient time in which to sell Footasylum, given the additional challenges associated with coronavirus."

Executive chairman Peter Cowgill said: "We fundamentally disagree with the CMA's decision, which continues to rely on an inaccurate and outdated analysis of the UK sports retail competitive landscape, and is underpinned by outdated and flawed customer surveys.

"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."

Cowgill said the company will consider whether to formally challenge the decision in the Competition Appeal Tribunal.

CMC Markets analyst Michael Hewson said that given the current retail environment, it's hard to disagree with JD Sports' assessment that the decision is absurd.

"While it's easy to argue that JD Sports management would say that wouldn't they, today's decision by the CMA appears to take little account of the complete change of economic environment that has taken place since JD Sports bought its smaller competitor nearly a year ago.

"At a time when UK retail is facing numerous challenges even without the coronavirus shutdowns, this decision comes across as completely incomprehensible, and could result in significant numbers of job losses, and would in all likelihood make little difference to overall prices in the long run."

Hewson said the decision to block the Asda and Sainsbury merger may have made some sort of sense, given the size of both brands, but this "clearly does not and rather calls into question the overall competence of the CMA's processes".

Shore Capital said the CMA had taken "a very tough stance" on the acquisition. "As a standalone business it was failing and with the benefit of hindsight perhaps expanded too quickly. Sitting inside the JD Sports stable would have enabled it to expand whilst allowing it to benefit from scale economies from a larger retail group."

It added that selling the Footasylum business will not be an easy task for JD given the current retail environment.