CMA to reconsider JD Sports – Footasylum merger

CMA to reconsider JD Sports – Footasylum merger

On 13 November 2020, the Competition Appeal Tribunal (CAT) quashed the CMA’s decision to undo the JD Sports/Footasylum merger, concluding that the CMA did not sufficiently consider the implications of the pandemic in its decision. Resultantly, the case has been remitted to the CMA for reconsideration.

The CMA first announced its decision to block the merger in May 2020, stating that the entities were close competitors and the merger would result in a substantial lessening of competition nationally. As a result, JD was required to divest Footasylum in full to a suitable purchaser. However, JD contested this decision, arguing that the CMA did not account for the impact of the pandemic and the potential detrimental impact this would have on Footasylum. (For more on this see Watchdog blocks JD Sport-Footasylum merger).

JD appealed the decision in the CMA’s final report on three grounds:

  1. The CMA erred in law and/or acted irrationally in: (i) applying its Merger Assessment Guidelines in determining whether any lessening of competition caused by the Merger was ‘substantial’ and; (ii) assessing the aggregate constraints on the merged entity posed by suppliers and retail rivals, currently and in the future
  2. The CMA erred in law and/or acted irrationally in: (i) excluding from the counterfactual the effect of Covid-19 on Footasylum; and (ii) its assessment of the effect of Covid-19 on Footasylum.
  3. The CMA erred in law and/or acted irrationally and/or failed to provide adequate reasons regarding: (i) Frasers Group Plc’s elevation strategy; (ii) the constraint posed by suppliers on the merged entity; and (iii) the constraint on the merged entity posed by Nike’s and Adidas’ own direct to consumer (DTC) retail offer.

The CAT unanimously dismissed grounds 1 and partially dismissed grounds 3, however, concluded that, under ground 2, the CMA did not procure enough evidence in regard to its conclusions as to the impact of the coronavirus. The CAT upheld grounds 3(3) on similar grounds, stating the CMA did not have the necessary evidence to draw conclusions on the impact of the pandemic on the ability of Nike and Adidas to increase their own DTC operations to the disadvantage of the merged entity.  The CAT further went on to state that the assessment of the effects of the pandemic is ‘sufficiently material to the CMA’s overall conclusions as to require further examination of the final report as a whole’, and remitted the case back to the CMA for reconsideration in light of this.

The CMA have responded, stating that the pandemic hit the UK heavily during the final weeks of the CMA’s inquiry, meaning that its assessments were ‘undertaken in the context of great uncertainty about the longer term impact of the coronavirus on the retail sector’. Therefore, the CMA had concluded that asking suppliers and Footaslyum’s bank for updated forecasts on how the coronavirus would impact the retail sector would be unreliable and speculative.

CMA’s chief executive Andrea Coscelli expressed her disappointment that the Tribunal did not support this approach given the circumstances and stated, ‘we will now take stock of today’s judgement and carefully consider our next steps, including whether to appeal’.

The full judgement can be found here.

For a full timeline of events and in-depth review of this case, check out the competition case hub.

Market Tracker will continue to monitor this transaction as it develops.

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