Footasylum Ltd. is the next likely target in the power struggle between JD Sports Fashion Plc and its rival Sports Direct.
The stage is set, now that U.K.’s competition regulator has ruled that JD Sports has to drop Footasylum based on anti-competition grounds. And Frasers Group chairman Mike Ashley—he owns Sports Direct and changed the company name to Frasers Group after acquiring House of Fraser—is said to have made an overture to acquire the Footasylum chain. In fact, the bad blood between Ashley and JD Sports executive chairman Peter Cowgill was already evident in a highly charged statement the latter made last year when we voiced his concern about the regulator’s initial ruling.
According to the regulatory logic, JD Sports’ ownership of Footasylum would likely result in consumers facing higher prices and fewer shopping choices. JD Sports took an 8.3 percent stake in Footasylum in 2019. The Competition and Markets Authority (CMA) initially blocked the $123.5 million merger in May 2020.
“We fundamentally disagree with the CMA’s decision, which continues to rely on an inaccurate and outdated analysis of the UK sports retail competitive landscape, and is underpinned by outdated and flawed customer surveys,” Cowgill said at the time. “At the same time, incredibly, the CMA has been taken in by the self-serving testimony of one notoriously vocal competitor, who has made numerous public announcements confirming their ongoing investment in their elevation strategy and who has blatantly participated in the process for their own commercial interests rather than for the benefit of consumers.”
Many believe that the “self-serving” slam was an indirect dig at Ashley and Sports Direct. Cowgill also said that when JD Sports made its offer in March 2019 for Footasylum, the goal was to fully support the retailer and its employees to “grow the business and increase the quality, range and choice of products available to customers.”
JD Sports appealed to the Competition Appeal Tribunal, which in November last year overturned the ban and asked the CMA to reconsider.
The appeal provisionally blocked the deal for a second time in September 2021. Cowgill said he was “perplexed” that the agency rejected the merger. A final decision last month ordered JD Sports to unwind the 2019 deal.
“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 last month. “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.”
“We have made compelling submissions on the committed positioning of the global brands towards direct to consumer and the consequent impact on an extremely competitive marketplace,” Cowgill said, adding, “I am not sure what further evidence the CMA needs to appreciate the extent of this dynamic change which has been substantially accelerated by COVID-19.”
JD Sports said last month that it was reviewing the CMA decision in detail and “will carefully consider its options accordingly.”
But now Frasers has thrown some fuel into the fire, fanning the flames of an intense rivalry. Ashley’s company reportedly has notified the CMA of its plan to make an offer, according to a report in The Sunday Times. An offer from Fraser would also need the CMA’s approval before a deal could move forward.