JD Sports Regulatory News (JD.)

14 September 2017

JD Sports Fashion Plc

Conditional combination of JD's existing interests across Iberia with Sport Zone in Portugal, Spain and Canary Islands, and proposed associated related party transaction

JD Sports Fashion Plc ('JD' or the 'Company'), the leading retailer of sports, fashion and outdoor brands, announces that, further to its announcement of 9 March 2017, it exchanged conditional contracts on 13 September 2017 to combine its existing business in Iberia, JD Sprinter Holdings 2010 S.L. ('JDSH'), with the Sport Zone business1 ('Sport Zone') which is a subsidiary of Sonae - SGPS, SA ('Sonae') (the 'Sport Zone Transaction') and one of the largest sports retailers in Spain and Portugal. As part of the transaction, JD will also purchase shares in JDSH from Balaiko Firaja Invest SL ('Balaiko'), which is the investment vehicle for the current minority family shareholder in JDSH (the 'Balaiko Transaction') (together the 'Transactions').

With an estimated combined turnover in excess of €450m and a store network of 311 stores (204 of which are in Spain (mainland and Canary Islands) and 107 are in Portugal), JD, together with Sport Zone, will, on completion, become the second largest Iberian Sports Retailer and will generate further scale, momentum and resources to continue the current growth of JD in Spain and Portugal.

Information on Sport Zone

Sport Zone is a well-established and leading multi branded sports retailer in Portugal, with a presence in Spain (mainland and Canary Islands). With 140 stores in Iberia (94 in Portugal and 46 in Spain, of which 20 are in the Canary Islands) it offers a multisport product range with a wide apparel, footwear, accessories and equipment offering.

The aggregated reported revenue for the entities that include the Sport Zone business for the financial year to 31 December 2016 was €226.7m, with store EBITDA of €37.2m, gross assets of €150.1m and a loss before tax of €27.7m. These figures are presented as an aggregation of the audited accounts for these entities and will not be comparable to the ongoing business as they have not been adjusted to discount for i) activities outside of the scope of Sport Zone and therefore not part of the Transactions; ii) certain Sonae Group charges which will not continue in the new structure and iii) other intragroup transactions customary for a group of this nature.

Sport Zone is currently wholly-owned by Sonae, a Portuguese based multinational corporation that

manages a portfolio of businesses across a range of sectors.

Background to and reasons for the Transactions

Sonae is a large listed group in Portugal with significant retail activity and an experienced and proficient management team who are extremely knowledgeable about the Portuguese retail market after having traded there for many years. The existing management team of JDSH is led by the Segarra family (who are shareholders in Balaiko) who have been instrumental in the success of the JD Spain and Sprinter businesses over the past 5 years, building upon their extensive knowledge of the Spanish retail market.

Upon completion, JDSH will be able to draw on the experience and expertise from both management teams, to create an effective and efficient retailer across Iberia. It is also expected that by bringing together both businesses there is significant potential for accelerating growth and streamlining the organisational structure.

The management teams from both the Company and Sonae will play a key role in the future strategic and operational management of the combined business across Iberia.

The Balaiko Transaction will align the share ownership structure of JDSH and allow the Company to maintain its majority interest in JDSH following the Sport Zone Transaction, which, amongst other things, will allow the Company to continue to consolidate the net assets of JDSH into its accounts.

Following completion, JDSH will have as shareholders JD, Sonae and Balaiko with shareholdings of approximately 50%, 30% and 20%, respectively.

Terms of the Transactions

Consideration to Sonae for the Sport Zone Transaction comprises a shareholding of approximately 30% in JDSH and cash of €7.1m. Additionally, and inter-conditional on completion of the Sport Zone Transaction, the Company will, subject to shareholder approval inter alia, acquire a shareholding of approximately 2.35% in JDSH from Balaiko, for €6.0 million. These initial cash payments will be satisfied from existing free cash resources in JD.

There is also contingent consideration of up to €23.5m payable to Sonae in the future by JDSH based upon, and matched by, future value creation over and above our expectations.

Additionally, a number of put and call options, to enable future exit opportunities for the Company, Sonae and Balaiko have been conditionally entered into as part of the Sport Zone Transaction and the Balaiko Transaction. The value of these put and call options are subject to independent valuation at the time they are exercised and to the extent the exercise of any of these put and call options are not at the sole discretion of the Company, the independent valuations have been capped. In each case, and in aggregate across each of Sonae and Balaiko, consideration payable will be capped at 24.99% of JD's gross capital (pursuant to section 7R of Annex 1 of Listing Rule 10), less any consideration already paid under the Transactions. Within this aggregated limit, there is also a specific limit for Balaiko of 24.99% of JD's gross assets.

In accordance with European Union Law, the transaction will be notified to the European Commission who may defer responsibility for assessing the transaction to the national competition authorities in Portugal and Spain respectively. Completion of the acquisition is therefore conditional inter alia on JDSH and Sonae being satisfied with the terms of the approval of the transaction issued by the relevant Competition Authority. Completion is also conditional on the satisfaction of other conditions2. Given the potential timings associated with the competition assessment process in particular, we would not expect the Sport Zone transaction to have a significant impact on the Company's results for the current year to 3 February 2018.

Related Party Transaction

Balaiko is an investment vehicle owned by the Segarra family who founded the Sprinter group of companies which were acquired by JDSH in 2011. As part of this acquisition, Balaiko became a minority shareholder in JDSH and currently owns an effective shareholding of approximately 33.3% in JDSH.

By virtue of Balaiko's current interest in the issued share capital of JDSH and the potential aggregate consideration due to it, the Balaiko Transaction constitutes a related party transaction under Chapter 11 of the UK Listing Rules.

Consequently, the Balaiko Transaction is conditional upon, and must be approved by, the Company's shareholders before it can be completed. Accordingly, the approval of the Company's shareholders will be sought at the General Meeting to be held on 5 October 2017. An explanatory circular containing the Notice of the General Meeting will be sent to shareholders today and the Company will make a further announcement accordingly.

Irrevocable undertakings

The Company has received an irrevocable undertaking from Pentland Group plc to vote in favour of the resolution to approve the Balaiko Transaction (the "Resolution") in respect of their entire holding in the Company, representing approximately 57.47% of the Company's issued share capital.

Furthermore, all the Directors who hold ordinary shares of 0.25p each in the capital of the Company ('Ordinary Shares') have provided irrevocable undertakings to vote in favour of the Resolution in respect of their respective holdings of, in aggregate, 8,924,260 Ordinary Shares, representing approximately 0.91% of the Company's issued share capital.

Accordingly, the Company has, in aggregate, received irrevocable undertakings to vote in favour of the Resolution in respect of 568,198,700 Ordinary Shares, representing approximately 58.38% of the Company's issued share capital.

Peter Cowgill, Executive Chairman, commented:

"Sport Zone is very complementary to our existing businesses in Iberia. We believe there are significant opportunities for synergies to be created to improve operational efficiencies and profitability through the combination of the very experienced and knowledgeable management team at Sport Zone and our own expertise as we continue to strengthen JD's presence in Europe."

Enquiries:

JD Sports Fashion Plc Tel: 0161 767 1000

Peter Cowgill, Executive Chairman

Brian Small, Chief Financial Officer

Neil Greenhalgh, Group Financial Controller

MHP Communications Tel: 0203 128 8100

Andrew Jaques

Barnaby Fry

Gina Bell

1 comprising 100% of Sport Zone Portugal (Sports Division SR), 100% of Sport Zone Spain (Sport Zone España - Comercio de Articulos de Deporte S.A.) and 60% of Sport Zone Canaries (Sport Zone Canarias SL) (together 'Sport Zone').

2 including the receipt of consent from certain landlords and the consent of Sport Zone's lenders

Information on JDSH

JDSH was incorporated by the Company as an entity in 2011 to acquire the trading businesses that make up the Sprinter group of companies, one of the leading multi branded sports retailers in Spain selling footwear, apparel, accessories and equipment for a wide range of sports as well as lifestyle casual wear and childrenswear. JDSH and its subsidiaries operate the Company's business in Spain and Portugal.

The Company currently owns an effective shareholding of approximately 66.7% in JDSH with the net assets of JDSH consolidated in the Company's accounts. Balaiko currently holds the balance of JDSH's issued share capital.

For the year ended January 2017, JDSH reported a profit before tax of £11.8 million and gross assets of £103.5 million.

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulations (EU) No. 596/2014 ("MAR") and is disclosed in accordance with the Company's obligations under Article 17 of MAR.