JD Sports Fashion Plc’s acquisition of Footasylum hangs in balance

Highlights of the CMA review

The company on 11 February 2020 came out with a trading update on the CMA review of Footasylum acquisition made by the company in April 2019.

  • The update doesn’t conform to the narrative of the CMA that the acquisition will lead to a monopoly-like situation in the United Kingdom and less competitive industry landscape.
  • The company in the update states that there are several players in the market like large number of retailers selling brands manufactured by third parties and also international players like Nike and Adidas, which are strong competitors and would continue to keep the market competitive in the foreseeable future.
  • The company had acquired Footasylum for cash consideration of £86.0 million with the Group also assuming the latter’s net debt of approximately £7.8 million.
  • The acquiree company Footasylum had 69 stores across the UK complemented by a highly regarded trading website which contributed approximately 30 per cent of sales, making it an attractive target for the company.
  • The Competition and Markets Authority (CMA) had put the acquisition under review and had issued the Group with an enforcement order which obliges it to operate the Footasylum business separately till the time the review is completed.
  • The company, in the meantime, continues to operate Footasylum as a separate business entity.

Outlook

JD Sports Fashion Plc has been on an acquisition spree since the past few years. The company has now firmly positioned itself as one of the largest sports fashion retailers in the world. Its dominant position in the United Kingdom only gets stronger with the acquisition of Footasylum. However, the idea that the company will acquire a monopoly-like position in the market is unfounded. The fashion and sports apparel and accessories market have lower barriers of entry and exit, which is the reason why there have been so many competitors of JD Sports Fashion Plc over the years. There are also several powerful multinational sports brands like Adidas and Nike who have financial muscle several times larger than that of JD Sports Fashion Plc and who have a significant presence in the British market. The acquisition of Footasylum also brings to JD Sports Fashion Plc’s stable several brands and labels which have significant international revenue market share and could help the company expand its overseas footprints. There is also the dimension of online retailing which has been eating into the market share of traditional store-based retailers making the assertions of Competition and Markets Authority even more unfounded.

The retail industry in the United Kingdom has had a strong start in 2020 after several years of underperformance due to the Pre-Brexit Jitters. The consumer confidence index, employment index and a host of other leading economic indicators have been looking up since the result announcement of the December 2019 general elections. The new year and periods thereafter promise to be exciting for the industry. The Footasylum deal puts the company in a strong footing as far as taking advantage of the changed economic scenario is concerned. Contrary to the CMA’s belief the company’s main competitors are the online retailing businesses, and the acquisition made by JD Sports Fashion Plc is a sign of market consolidation that is taking place in order to tackle this very threat.

 

JD Sports Fashion Plc stock trading performance at the London Stock Exchange

Source – Thomson Reuters

The shares of the company were trading at GBX 865.14 on the London Stock Exchange at the time of preparation of this report on 14 February 2020.  The market capitalization of the stock at the time was £8.45 billion.

In the past 52 weeks of trading on the exchange, the shares of the company have touched a price of GBX 890.000 on the lower side and a price of GBX 436.50 on the lower side. The trading activity of the stock exhibiting a Beta of 0.95 signifies a lower volatility compared to the benchmark index.

The stock’s traded volume at the time of trading on 14 February 2020 stood at 164,955, and the stock’s average daily traded volume for the past five days period was 1,163,621.40; for the past 30-day period was 1,420,371.50 and for the past 90-day period was 2,064,420.87. The stocks daily trading volumes on the London Stock Exchange on an average for five days were up by 18.08 per cent compared to the 30 days’ average daily traded volume, and in last one month, the stock of the company has generated a return of +1.68 per cent and also a return of +3.72 per cent on a year to date basis.

 A brief introduction to JD Sports Fashion plc

JD Sports Fashion plc (LON: JD.) is a United Kingdom domiciled apparel retailing company with specialisation in sports and fashion wear. Headquartered in Bury, Lancashire, England, the company has expanded its operations internationally into the United States of America, Asia, Australia and within Europe as well. The company was founded in 1981 with its first store opening in 1981 and the company went public in the year 1996.

Over the years, the company has grown substantially through a series of acquisitions. In the year 2001, the company acquired First Sport from Blacks Leisure Group which brought nearly 200 stores to its fold. In the year 2005, it acquired 70 stores from Allsport which went into administration earlier that year. In 2007 the company bought out Bank Stores, a retailer of fashion brands for £19 million. In 2009 the company acquired Chausport, which had a chain of 75 small stores in France. In 2011 the company acquired Champion Sports for €19.6 million, in 2012 acquired clothing brand FLY53 for an undisclosed amount, in same year acquired 40 per cent stake in fashion retailer Tessuti and acquired the rest in 2016. The company’s acquisition spree continues with one or more such transactions happening every year.

The company is also the official supplier of apparel and sponsors of numerous sports bodies and teams, some of which are famous names such as, Dundee United, Blackpool, Luton Town, Oldham Athletic, Charlton Athletic and Bournemouth.

The shares of the company are listed on the Premium main Market segment of the London Stock Exchange, where they are identified with the ticker name JD. The shares of the company also form part of the FTSE 100 index at the exchange.