LONDON (Reuters) - UK sportswear retailer JD Sports (JD.L) may have to sell Footasylum if it does not address competition concerns about last year’s acquisition of its smaller rival, Britain’s competition watchdog said on Tuesday after an in-depth review of the takeover.
JD Sports acquired Footasylum in an 86 million pound ($111 million) takeover completed last April but has faced scrutiny from the Competition and Markets Authority (CMA) which has said the takeover could be bad for shoppers.
On Tuesday, the CMA said it was concerned that the loss of high street competition could mean fewer discounts, clearance sales and promotions, a lower quality of customer service and less choice in stores and online.
“(The CMA’s) current view is that blocking the deal by requiring JD Sports to sell the Footasylum business may be the only way of addressing these competition concerns,” Kip Meek, chair of a CMA panel that conducted the in-depth review said in a statement.
JD, which has valued Footasylum at up to 90 million pounds ($116 million), said it would continue to make its case to the CMA ahead of a Feb. 25 deadline for new proposals from the company to remedy the concerns.
“This (Footasylum) is a very small part of the JD machine but the explanation from the CMA is puzzling. It suggests JD would reduce range/service quality, odd when improving such factors has been its secret sauce,” Peel Hunt analysts said.
JD has outperformed Britain’s struggling retail sector, helped by a strong online operation and the continuing popularity of its often discounted athleisure wear and trainers.
On Tuesday it said that earnings for the financial year ending Feb. 1, 2020 were expected to be at least equal to the top end of market expectations of between 403 million pounds and 434 million pounds.
That sent its shares, which have almost tripled in value since late 2018, up 3% in morning trade.
The company also said that it still believed its acquisition of Footasylum would benefit both consumers and the UK high street.
“Just take a walk down any major UK high street or search for Nike or Adidas trainers on Google and you can see for yourself how competitive this marketplace really is,” JD Chairman Peter Cowgill said in the statement.
“We anticipate that Footasylum will contribute less than 2% of the Group’s earnings in the year to January 2020,” JD said.
The CMA launched an in-depth review of the takeover last October after an initial review raised potential competition concerns. It said JD had failed to address its initial concerns.
The CMA’s investigation provisionally found that the two retailers compete closely and that surveyed customers indicated that there are only a small number of other chains they would consider buying from.
The CMA said it would ask for views on its provisional findings by March 3 and will assess all evidence before making a final decision. It said it has extended the deadline for its final report to May 11, from March 16.
Reporting by Sinead Cruise in London and Tanishaa Nadkar in Bengaluru; Editing by Susan Fenton