Footasylum has been facing tough times of late, issuing two trading updates in 2018 lowering expectations for the year’s earnings—including the most recent update in Jan. 2019 that announced the company’s EBITDA outlook for the current fiscal year would be less than half of the 12.5 million pounds ($15.94 million) earned the year prior, due to disappointing same-store sales and “challenging” market conditions on the U.K. high street.
On the other hand, JD Sports has managed to be one of few retail winners to come out of the same challenging environment, and even upgraded its profit outlook after Christmas. It has also begun to expand into the U.S. with five new stores and the acquisition of athletic apparel retailer, The Finish Line. JD Sports’ total sales were up 15 percent, year-over-year, in its most recent holiday trading update.
Investors have reacted positively to the news that the two formerly competing retailers will have a common business interest in the coming months, sending Footasylum stock to its highest point since June 18, 2018. When trading opened on Monday, the day of the announcement, Footasylum stock jumped nearly 65 percent, finally landing on a price of 55 pence (72 cents) at day’s end from just over 29 pence (38 cents) at the end of the previous trading day.
“Footasylum, a UK-based fashion retailer focusing on the branded footwear and apparel markets, notes today’s announcement that JD Sports Fashion Plc has acquired 8.3% of the issued share capital in Footasylum for investment purposes, and that it is prepared to acquire up to an aggregate interest of 29.9% of the company,” Footasylum said in a statement. “Footasylum continues to operate its business as usual and remains focused on delivering its differentiated, product-led, multi-channel proposition.”
At the same time, the market rewarded JD Sports for the acquisition, giving the company its best share price in three months at 4.67 pounds ($6.10), an increase of about 4 percent from the opening bell. At publication time, the company’s stock is sitting at a slightly higher 4.73 pounds ($6.18) per share.
JD Sports claims that, despite its plans to acquire more shares in Footasylum, it has no interest or intention to make an ownership offer for the retailer. Regardless, the company will likely have a large say in how Footasylum operates, as a subsequent announcement confirmed that JD Sports’ shares would come with 18.74 percent of voting rights.
According to The Guardian, the shares were acquired from a single “major institutional shareholder” at a price of 50 pence (65 cents), slightly below the current value of Footasylum stock, which is 52 pence (68 cents) at the time of writing.
The companies also have a bit of a shared history, as Footasylum is owned and operated by the Makin family, the patriarch of which was also one of the co-founders of JD Sports in 1981. David Makin, the father of current Footasylum CEO, Clare Nesbitt, began Footasylum in 2005 after leaving JD Sports. In total, the Makin family holds 63 percent of all Footasylum stock.
However, if JD Sports goes through with its plans to acquire up to 29.9 percent of Footasylum stock, it would own more stock in the company than any one member of the Makin family.