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JD Sports may be forced to sell Footasylum

The CMA has provisionally found that the deal could substantially reduce competition
JD Sports may be forced to sell Footasylum

The Competition and Markets Authority (CMA) has provisionally found that JD Sports Fashion’s (JD.) £90.1m acquisition of Footasylum in March last year could lead to substantially reduced competition in the sports clothing market, prompting JD’s management to denounce the findings as “alarming”, “fundamentally flawed” and based on “a complete misunderstanding of our market”.

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The regulator will publish its final findings in May this year, but suggested that the sale of Footasylum could be the only workable solution to reduced competition. In a document outlining possible remedies, the CMA said its initial view was that “full divestiture of Footasylum by JD Sports is likely to be the only effective remedy”.

The crux of the CMA's concern is that JD Sports is the largest retailer in the sportswear sector, and competes closely with Footasylum. Given the relatively small number of competing retailers in the sector, it said the takeover could lead to a loss of competition and, ultimately, to fewer discounts for customers or lower-quality customer service.

However, JD argued that the regulator’s findings fail to take into account the increasing strength of pure-play online retailers and the direct-to-customer offerings of clothing brands themselves.

Analysts sided with JD over the decision, with Shore Capital – admittedly a market maker in the group’s shares – saying the deal was not anticompetitive “and to suggest otherwise highlights that the CMA hasn’t fully [understood] the wider sports retail market”. House broker Peel Hunt described the decision as “disappointing”, adding that while a sale of Footasylum looked likely, it expected the company to struggle on its own. It suggested Frasers Group (FRAS) as a possible buyer, but noted that similar competition issues exist there.