CMA to refer JD Sports' Footasylum deal to Phase 2 investigation

The Competition and Markets Authority has referred JD Sports Fashion’s acquisition of Footasylum to an in-depth investigation after the retailer failed to offer up any remedies.

The watchdog said on Tuesda that it had made the decision on the basis that the deal could result in a substantial lessening of competition.

JD said in a statement that it had carefully considered the CMA's observations and its claims that the acquisition would give rise to less competition. It disagreed, however, arguing that there is "clear evidence" the deal would not substantially reduce competition in the relevant clothing and footwear retail markets where the two businesses operate.

"In light of the content of the CMA's full Phase 1 decision, JD has informed the CMA that it does not consider that there are any appropriate remedies that can be offered at this time to avoid a reference to Phase 2 being made," it said.

The company said it will continue to co-operate fully with the CMA "to firmly establish that both JD and Footasylum operate in an extremely competitive and dynamic retail market and that they will continue to face strong competition following the acquisition".

Executive chairman Peter Cowgill said: "The CMA has referred their review of this acquisition to Phase 2 on the basis that it could be bad for competition and may have an impact on price. I strongly disagree with this.

"This transaction will not result in any price increases or a reduction in product ranges or service quality. The focus of all of our group businesses is to ensure we deliver a best in class, multichannel experience to our consumers by offering a compelling product proposition."

Shore Capital analyst Greg Lawless said: "So, having acquired Footasylum back in the Spring it will continue to have to run the business separately, whist facing a probable four to six-month competition probe by the regulatory increasing both the cost and management time to deal with the more detailed inquiry.

"An unhelpful distraction and again shows how the CMA continues to take a more scrutinised look at retail M&A deals. As the recent interim results showed JD has real trading momentum and we continue to reiterate our 'buy' rating highlighting both international growth and strong cash flow."

Neil Wilson, chief market analyst at Markets.com, said: "Mike Ashley will be looking on with a mild sense of schadenfreude. The merger between JD Sports and Footasylum could be off, as the planned tie-up becomes subject to a more in-depth investigation by the CMA.

"Last month the CMA said it was minded to refer the merger to a Phase 2 investigation unless JD could come up with remedies. But JD is sticking to its guns and says the acquisition would not result in a substantial lessening of competition. The incredibly fickle CMA is very hard to predict, but one senses that JD’s failure to suggest any kind of remedy at all won’t go down terribly well."