December 24, 2010 / 10:54 AM / 9 years ago

UPDATE 2-JJB taps Bill Gates, others, to stay afloat

* Gets investor backing for 31.5 mln stg fundraising

* Bank of Scotland agrees to waive covenant test

* Underlying sales down 15.7 pct in 6 weeks to Dec. 19

* Mike McTighe succeeds John Clare as chairman, new CFO

* Shares up 20 pct

(Adds detail, analyst comment, updates shares)

By James Davey and Karolina Tagaris

LONDON, Dec 24 (Reuters) - Struggling British sportswear retailer JJB Sports JJB.L said investors including Bill Gates, the United States’ richest man, have backed a 31.5 million pounds ($48.57 million) fundraising to keep the firm alive.

JJB said on Friday the Bill and Melinda Gates Foundation Trust, which holds a 5.5 percent stake, had agreed to support a capital raising at 5 pence a share — a 25 percent premium to Wednesday’s closing price — along with JJB’s other main investors Harris Associates, Crystal Amber and GoldenPeaks Capital. The four together hold 44.3 percent of JJB shares.

Crystal Amber has also persuaded its own major shareholder Invesco Perpetual to back the fundraising.

JJB shares, which prior to Friday had lost 83 percent of their value over the last year, were up 20 percent to 5.21 pence at 1146 GMT, valuing the business at about 34 million pounds.

The retailer, which issued a profit warning in November, said its main lender Bank of Scotland (LLOY.L) had agreed to waive covenant tests for the firm’s 25 million pounds facility on the basis of the proposed capital raising. The company had warned earlier this month it was likely to breach the covenant. [ID:nLDE6AA0DC] [ID:nLDE6B1078]

JJB also shook up its board, with chairman John Clare and chief financial officer Lawrence Coppock stepping down to be replaced by Mike McTighe, a former Cable & Wireless executive and restructuring expert, and Dave Williams, former finance director of discount retailer TJ Hughes.

Gates, the billionaire philanthropist and founder of Microsoft (MSFT.O), is no stranger to British retail laggards. He has built up a significant holding in Carpetright CATVU.L, the nation’s biggest floor coverings retailer which earlier this month posted a 28 percent fall in first-half profit. [ID:nLDE6B90X2] [ID:nLDE6BD1EG]

JJB’s funding lifeline offset news of dire pre-Christmas trading, with sales at stores open over a year slumping 15.7 percent in the six weeks to Dec. 19. JJB blamed the fall on the extreme winter weather and “stock availability issues.” Gross margin collapsed 9.9 percentage points year-on-year.

MORE LONG-TERM PAIN

Analysts were alarmed by JJB’s warning that the proposed fundraising will not address its medium and longer term working capital requirements. They anticipate further, larger, fundraisings in the new year.

Nick Bubb, analyst at Arden Partners, said the grisly Christmas trading would push year to end-Jan. 2011 losses to over 50 million pounds.

“The scary thing is that even today’s placing will only tide JJB over for a few months ... and we suspect that the key shareholders supporting JJB are simply throwing good money after bad,” he said.

But he noted that the big sports suppliers, such as Adidas (ADSGn.DE) and Nike (NKE.N), will want to keep JJB in business to avoid Sports Direct SPD.L from dominating the market.

JJB was driven to the brink of administration during the recession, but survived thanks to a deal to sell its fitness clubs to founder Dave Whelan, a debt restructuring with creditors, new banking facilities and an equity fundraising.

Under new chief executive Keith Jones it has since been refitting stores and improving its internet business within a strategy targeted at keen amateurs, recreational sports participants and sporting families.

But analysts believe the group has suffered recently from a step-up in promotions and advertising from market leader Sports Direct, which is controlled by Newcastle United soccer club owner Mike Ashley.

Last week Sports Direct posted a 40 percent rise in half-year profit and in stark contrast to JJB said Britain’s cold snap had been a “net positive” for its business. [ID:nLDE6BE0W7]

Editing by Sophie Walker

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