JD Sports Fashion PLC (LON:JD.) has blasted a Competition and Markets Authority (CMA) investigation into its acquisition of footwear chain Footasylum, saying the regulator’s competition concerns are “fundamentally flawed”.
The CMA said on Tuesday that it had concerns around the FTSE 100 ‘athleisure’ clothing retailer’s £90mln acquisition of Footasylum, which was completed in May, saying the merger will result in “substantially less competition”.
Regulators are also worried that the merger will see fewer discounts for shoppers due to a smaller choice of outlets both online and on the high street.
The CMA concluded that blocking the merger “may be the only way of addressing these competition concerns”.
JD Sports disagreed, saying that the regulator’s assessment did not reflect “the intensive and dynamic competitive reality of the UK sports retail market”, adding that the market had “materially altered” over the course of the CMA’s review.
"The CMA's provisional decision is fundamentally flawed and demonstrates a complete misunderstanding of our market to an alarming extent, given its six-month review”, said JD’s executive chairman Peter Cowgill.
"The competitive landscape described by the CMA is one which neither I, nor any experienced sector analyst, would recognise. Just take a walk down any major UK high street or search for Nike or adidas trainers on Google and you can see for yourself how competitive this marketplace really is”, he added.
JD’s assessment was backed up by analysts at Shore Capital, who said the Footasylum deal “isn’t anti-competitive and to suggest otherwise highlights that the CMA [doesn’t] fully understand the wider global sports retail market”.
Meanwhile, analysts at Peel Hunt, which rates JD Sportd at a ‘buy’ with a target price of 900p, said while a CMA blocking of the merger will be “a disappointing outcome”, Footasylum would only have contributed 2% of the company’s earnings and as such, the fallout would be “hardly catastrophic”.
Investors also seemed unphased, with JD’s shares rising 1.9% to 861.8p in early deals.