JD Sports and Footasylum merger takes a few steps back

JD Sports and Footasylum merger takes a few steps back

On 19 September 2019, the CMA’s willingness to take action against companies that have completed takeovers was shown when it announced that unless it received satisfactory undertakings from JD Sports Fashion plc and Footasylum plc, it would be commencing an in-depth investigation into the merger. The investigation might even lead the CMA to order the merger to be undone, even though the deal completed on 12 April 2019.

The UK’s voluntary referral regime with mergers means that it is possible, though unusual for mergers to be investigated after they have completed. Even less common is a decision to unwind a merger, although the CMA has also ordered this. For example, it ordered that Tobii’s acquisition of Smartbox Assistive Technology and affiliate Sensory Software International be undone. The CMA’s predecessor, the Office For Fair Trading (OFT) made similar orders, for instance ordering the U.S firm Strericycle to sell Ecowaste Southwest Limited in 2012. When the government reformed the UK’s competition regime, it kept the system of voluntary referral for merger clearance, keeping open the possibility of mergers being investigated post-completion.

The CMA’s concern stems from the fact that both companies specialise in sportswear, which in the opinion of the watchdog, is an influential trend in fashion, especially amongst younger consumers. As the CMA identifies them as close competitors, it is concerned that the merger could reduce competition and reduce choice for consumers. For more detail on the competition issues raised see LNB News 19/09/2019 55.

On 20 September 2019, Sports Direct International announced that having noted the CMA’s decision to investigate the JD Sports/Footasylum merger, it had taken legal advice in relation to the issues identified by the CMA in its announcement, noting that brand relationships ‘are likely to be a key focus of any Phase II investigation’ and have wider implications, specifically controlling the supply of products and their pricing. Sports Direct then affirmed that they aim to provide the widest range of products at attractive prices and will work with their suppliers to enhance their offering.

Sports Direct’s announcement comes as its own dealings might come under scrutiny considering its recent brand building under Mike Ashley’s direction. The company have been involved in several acquisitions, including acquiring House of Fraser, trying to acquire Debenhams before they collapsed into administration, completing its acquisition of Game Digital plc and this week announcing a possible offer for Goals Soccer Centres plc. 

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