May 6, 2020 / 6:44 AM / a month ago

UK watchdog orders JD Sports to sell Footasylum

(Reuters) - Britain’s competition watchdog on Wednesday made good on its threat to order JD Sports (JD.L) to sell Footasylum, saying the sportswear retailer’s 86 million pound ($106 million) takeover of its smaller rival left shoppers worse off.

FILE PHOTO: People pass a JD Sports store in London, Britain April 11, 2017. Shares in Britain's JD Sports Fashion Plc climbed to a record high after strong demand for leisure clothing helped to drive a 55 percent rise in headline annual pretax profit, its biggest increase in eight years REUTERS/Neil Hall

JD said it was considering an appeal and that, in the context of coronavirus-related pressures on retailers, the decision put at risk the future of Footasylum and its 2,500 employees.

The Competition and Markets Authority (CMA), which has the power to investigate and reverse already completed mergers, had warned in February it might order the April 2019 deal to be unwound.

“We do not see the effects of the current crisis changing the competitive dynamics in a way that diminishes the substantial lessening of competition that we need to remedy,” it said on Wednesday.

Consumers have shifted their spending online as non-essential stores have been forced to close in the coronavirus lockdown, JD Sports Chairman Peter Cowgill said, adding that when restrictions are eased it is “virtually certain” that shopper numbers will not return to pre-crisis levels.

“While (selling) might have been possible a year ago, that is highly unlikely now, and even if JD Sports were able to find a buyer, they would have to take a huge loss on the original acquisition price,” CMC Markets analyst Michael Hewson said.

Footasylum was in a weakened financial position at the time of the deal, depends heavily on sales from its bricks and mortar stores and may have been forced to exit the market without JD’s financial backing, JD said.

Even before the coronavirus crisis, Britain’s retailers were struggling with weakening consumer spending due to Brexit, higher costs and more people shopping online.

JD has generally outperformed rivals by targeting younger consumers with popular athleisure products.

The uncertainty caused by the coronavirus pandemic has also hindered dealmaking globally with worldwide merger activity until mid-April down 33% from a year ago, according to data provider Refinitiv.

“We are astounded that the CMA has failed to recognise that this isn’t just a short-term blip, but rather a long-term societal and behavioural change in how consumers shop,” Cowgill said.

The CMA said an independent inquiry group decided the only way to address competition concerns was for JD to sell Footasylum to an approved buyer, but the retailer should be allowed sufficient time amid additional challenges caused by the pandemic.

Reporting by Tanishaa Nadkar in Bengaluru; Editing by Sherry Jacob-Phillips and Mark Potter

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