JD Sports Fashion PLC (LSE:JD.) has been instructed to sell Footasylum by the UK's Competition and Markets Authority (CMA) after the competition watchdog’s prolonged probe into the acquisition identified competition concerns.
The CMA said the merger meant customers would have “fewer options and could face higher prices, fewer discounts, and less choice of products in store”.
JD Sports said the decision to block the acquisition “defies logic” and that it will carefully consider its options.
JD Sports bought Footasylum in April 2019, but in May 2020 the CMA blocked the merger. Following an appeal by JD Sports, the watchdog was ordered to look at the deal again, taking into consideration the impact of the Coronavirus (COVID-19) pandemic.
In today’s statement, the CMA said JD Sports is “by far” the closest alternative for shoppers at Footasylum, even after taking into account the growth in online shopping, including on the websites of brands like Nike and adidas.
The watchdog said it found that despite increased competition from firms like Nike and adidas and the impact of COVID-19, Footasylum would remain in good financial health after being sold.
The CMA said it will oversee the sale of Footasylum and approve the purchaser in order to ensure the company will be run as a fully independent competitor.
CMA chair Kip Meek said: "The UK boasts a thriving sports fashion market and today's decision reflects our commitment to keeping it that way. We strongly believe shoppers could suffer if Footasylum stopped having to compete with JD Sports. It is likely they would pay more for less choice, worse service and lower quality.”
JD Sports executive chairman Peter Cowgill described the ruling as “inexplicable”.
"The CMA rightly concludes that, following the acquisition of Footasylum, JD would have no incentive to raise prices or worsen its offer as its most important competitors are the DTC [direct to consumers] operations of the international brands themselves,” he said.
"However, the CMA has then somehow concluded that the competitive threat from DTC does not extend to Footasylum and that JD would have an incentive to worsen the offer in Footasylum to the detriment of both consumers and suppliers. We would suggest that the CMA is in a minority of one in reaching this conclusion.
"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. It is deeply troubling at a time when the UK high street has been seriously damaged already and is vulnerable to further closures," Cowgill concluded.
JD Sports shares rose 1.71% to 1,101.50p in morning trade.