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Executive Tête-à-Tête Behind $5.8M JD Sports Fine

British retail saw two major developments this week.

Studio Retail

Studio Retail collapsed into administration Monday after failing to secure a loan from its lenders in what might very well be the first major U.K. retailer to crumble this year.

“Following detailed discussions with our UK lenders, the company has not been able to reach agreement with them to provide the additional funding Studio requires,” it said in a statement.

Formerly known as Findel, the online e-tailer rebranded as Studio Retail Group (SRG) in 2019 and sells apparel and homeware, among other items. Mike Ashley’s Frasers Group owns a 28.9 percent stake as the retailer’s largest investor. SRG rejected Frasers’ takeover in December 2019. Now the company’s collapse has revived speculation that Ashley could once again gamble for the ailing firm.

SRG put itself up for sale in December 2020 even though business was brisk during the pandemic. By April, it failed to find a buyer. Revenues were still up in 2021, reaching 578.6 million pounds ($780.8 million), but supply chain issues eventually began to take a toll, with SRG warning in January for the second time in two months that profits were lower and it would have to raise prices. Adjusted pre-tax profits for the year were estimated at 28 million pounds ($37.8 million) to 30 million pounds ($40.5 million). Analysts expected adjusted pre-tax profits around 35 million pounds ($47.2 million). Merchandise receipt delays and high shipping costs shrank SRG’s cash reserves.

The nail in the coffin came when its lenders refused a short-term 25 million pound ($33.7 million) loan to help it sell surplus stock. As many as 1,400 SRG jobs are now at risk.

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SRG’s collapse isn’t the first time an Ashley-backed investment has soured. His 29 percent stake in Debenhams valued at 150 million pounds ($202.4 million) evaporated in April 2019 when the department store collapsed into administration. Lenders rebuffed Ashley’s 150 million pound ($170 million) loan in an attempt to rescue Debenhams, and eventually took control of the business before it went bankrupt in April 2020 and was acquired by Boohoo.

Up to 1,400 jobs are now at risk after Studio Retail collapsed into bankruptcy proceedings when it failed to secure a much-needed loan.
Mike Ashley Kirsty O'Connor/PA Wire via AP Images

JD Sports fined 

JD Sports Fashion Plc was fined 4.3 million pounds ($5.8 million) by the Competition and Markets Authority (CMA) for violating an interim order linked to its banned Footasylum deal.

Controversy over its $123.5 million Footasylum merger has continued to dog JD Sports. The retailer took a 8.3 percent stake in Footasylum in 2019 and the CMA initially blocked the merger in May 2020. JD appealed to the Competition Appeal Tribunal. That appeal overturned the ban in November 2020. The matter was remitted to CMA, leading to its final ruling of November 2021.

A video that surfaced a week after the CMA’s November final ruling ignited the latest battle with JD. The film showed a tête-à-tête between JD executive chairman Peter Cowgill and his Footasylum counterpart, Barry Bown, in a car in July 2021. The meeting prompted CMA to probe possible corporate governance breaches. During CMA’s review of the deal, it had instructed the parties that while the companies’ leaders could meet, they should not share any confidential or commercially sensitive information.

At the time the film surfaced, JD Sports said the two had known each other for 25 years, and it was “not unusual, or “in any way suspicious or illegitimate” for them to meet periodically. Moreover, JD said it had already disclosed the meeting and its purpose to the CMA on July 5, 2021.

On Monday, JD said it “does not believe that the description of events or the penalty that has been levied is a fair reflection of the group’s efforts to ensure compliance with the order.” It added that while the company will review the detail of the CMA’s decision, JD also has already “taken swift action” to implement additional measures to strengthen its processes that now “go well beyond what is legally required by the CMA.” It plans to work “constructively” with the CMA to divest Footasylum in line with the November ruling. JD is planning on splitting up the roles of chairman and chief executive before the company’s annual shareholders meeting later this year.

But while JD said that there was never any intention to breach CMA’s rules, it did acknowledge that, “inadvertently, it was in receipt of limited commercially sensitive information and that this was not reported to the CMA immediately.”

Though JD emphasized that it has always acted honestly and in good faith in its efforts to comply with the CMA order, even responding to queries from the antitrust authority that sometimes “related to events which took place eight months prior,” it pointed out that there was no prohibition on the CEOs meeting and no legal requirement in the order for JD to either notify CMA that a meeting had taken place or take any notes of the meetings.

But JD’s statement on Monday also raised other details between it and the antitrust watchdog.

The retailer said it believes a number of further conclusions that CMA have drawn are “either incorrect or have been presented in a misleading manner through the use of inflammatory language.” JD went on to state that the CMA suggested for the “first time, that phone records have been deleted.” JD said that some phone records weren’t available, and refuted the allegation that the records were deliberately deleted. To prove its point, JD said it “can confirm that it voluntarily submitted all of its relevant devices to a third party for expert forensic analysis.”

The battle between JD and CMA had gone on since May 2020, and the CMA order last year was part of its antitrust  review of the Footasylum acquisition. The regulatory authority had provisionally barred JD’s purchase in September 2021, and issued a final ruling in November ordering the company to unwind its 2019 deal.

Pete Cowgill, JD’s executive chairman, was quick to criticize the decision, noting that it “defies logic” in light of CMA’s acknowledgement that most of the retailer’s biggest competitors are global brands with a digital presence in the U.K. rather than home grown rivals like Footasylum. Footasylum controls less than 5 percent market share. Cowgill even went so far as to suggest that CMA’s decision was in a “minority of one.”

CMA’s concern has been that the acquisition would leave UK customers with fewer options, even after taking into account major brands’ digital sales.

JD said on Jan. 12, 2022, that total revenues for the 22-week period ended Jan. 1 in its like-for-like businesses were “more than 10 percent ahead of the same period in 2020.” The momentum continued into January and full-year results are expected to be slightly ahead of previous expectations, with headline profit before tax and special items for the year ended Jan. 29 to be at least 900 million pounds ($1.2 million), the company said. But because of the planned divestment of Footasylum, JD and its auditors have agreed to delay the report of its final results for the year.