Though the Competition and Markets Authority (CMA) had provisionally barred the athletic retailer’s purchase in September, its final ruling Thursday ordering JD Sports to unwind the 2019 deal “defies logic,” said Peter Cowgill, executive chairman for the Pentland Group-owned company.
Higher consumer prices and limited shopping choices were at the heart of the U.K. regulator’s concerns. However, JD Sports takes issue with CMA’s acknowledgement that most of the retailer’s biggest competitors are global brands with a digital presence in the U.K. rather than homegrown rivals like Footasylum, which controls less than 5 percent market share.
To JD Sports’ consternation, the CMA further agreed that the deal didn’t result in a “substantial lessening of competition,” which means the retailer had no incentive to inflate prices or degrade the consumer experience.
Yet, the CMA ultimately reasoned that the acquisition would leave customers with fewer options, even after taking into account major brands’ digital sales.
“Prior to this, in every other case under the UK merger regime between competitors, including its first review of this merger with Footasylum, the CMA has justified its intervention on the basis that the merger eliminated important rivalry for both the acquiring and the target business,” JD Sports said in a statement. “Given the critical areas in which the CMA agrees with JD and the fundamental change in its conclusion between the two inquiries, the decision to prohibit the acquisition defies logic.”
Cowgill suggested that the CMA’s decision is in a “minority of one.”
“Overall, the CMA’s decision today continues to be inexplicable to anyone who understands what difference the pandemic has made to UK retail and how competition and the supply chain in our markets actually work,” he said. “It is deeply troubling at a time when the UK high street has been seriously damaged already and is vulnerable to further closures.”
JD Sports might not be done fighting this battle. The company said it is studying the CMA report “in detail and will carefully consider its options accordingly.”
“The UK boasts a thriving sports fashion market and today’s decision reflects our commitment to keeping it that way, Kip Meek, chair of the CMA inquiry group, said in a Sky News report on Thursday. “The pandemic may have altered the way we shop but innovative businesses, driven by healthy competition, will rise to the challenge and successfully cater to changing tastes and habits.”
CMA initially blocked JD Sports’ proposed $123.5 million merger in May 2020. The company appealed to the Competition Appeal Tribunal, which in November last year overturned the ban and remitted the matter to CMA. JD Sports previously said that had it not invested in its competitor, Footasylum could have gone bankrupt during the worst of the pandemic.
The British sports and fashion retailer has been busy buying companies to add to its retail portfolio and grow its U.S. presence. In December, its spent $325 million to acquire Shoe Palace. And this past February, the company used a portion of its war chest to fund its $495 million purchase of DLTR, an American athletic and apparel streetwear retailer. This year also saw JD take a 60 percent stake in Polish retailer Marketing Investment Group S.A., which sells sports fashion footwear, apparel and accessories from leading brands under the Sizeer and 50 Style nameplates, and a controlling interest in Oi Polloi, a British men’s boutique based in Manchester.