TIDMJD.
RNS Number : 2843R
JD Sports Fashion Plc
04 November 2021
4 November 2021
JD Sports Fashion Plc
Update on CMA review of Footasylum acquisition
JD Sports Fashion Plc ("JD") notes the announcement earlier
today from the Competition and Markets Authority ("CMA") that it
has again prohibited JD's acquisition of Footasylum Limited
("Footasylum").
However, the CMA agrees with JD on a number of critical
aspects:
-- JD's most important competitors are now the Direct to
Consumer ("DTC") operations of the international brands themselves
rather than Footasylum with a market share of less than 5%.
-- As a result of this merger, there would be no substantial
lessening of competition for JD and so, consequently, JD has no
incentive to raise prices or worsen its consumer offer.
This is the first time ever that the CMA (including its
predecessors) has decided to block or remedy a deal between
competitors where it found that there will be no "substantial
lessening of competition" in relation to the acquiring
business.
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.
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.
Background to the Second Inquiry
After the Competition Appeal Tribunal ruling that the CMA's
original inquiry had made irrational errors, the CMA was instructed
to go back and reconsider the impact of the COVID-19 pandemic. A
key issue was to examine the degree to which the structural
"digital shift" to online shopping during the pandemic has
fundamentally increased competition from Nike's and adidas' own DTC
retail offers on JD and Footasylum. At the same time, both parties
rely on these competitors, Nike and adidas, for access to and
supply of a significant number of key products.
JD agrees with the CMA's revised conclusions in relation to some
of the impacts of the pandemic:
-- Overall, the CMA concluded that "market developments ... have
resulted in Footasylum becoming a weaker constraint and other
competitors becoming stronger".
-- The CMA also found that Footasylum's market share is less
than 5% and it no longer considers Footasylum to be the "strong"
competitor to JD that it was pre-pandemic.
-- In comparing between the two surveys that it commissioned in
its inquiries either side of the pandemic, the CMA found that "More
JD Sports customers now consider Nike, Foot Locker and adidas as
their alternatives than they do Footasylum".
As a result, it is inexplicable to JD that the CMA remains of
the view that one small competitor, Footasylum, with less than 5%
of the market, is not subject to the same competitive pressures and
discipline from Nike and adidas DTC that affects the remaining 95%+
of the market.
Implications
The practical result of this extreme and unprecedented finding
is that the CMA requires the unwinding of the acquisition, which
closed in May 2019, meaning that JD cannot invest in and improve
Footasylum's customer proposition, as it has always intended to
do.
JD is studying the report in detail and will carefully consider
its options accordingly.
Peter Cowgill, Executive Chairman of JD Sports Fashion Plc,
commented:
"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 operations
of the international brands themselves.
"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."
Enquiries:
JD Sports Fashion plc Tel: 0161 767 1000
Peter Cowgill, Executive Chairman
Neil Greenhalgh, Chief Financial Officer
Jennifer Iveson, Investor Relations
MHP Communications Tel: 0203 128 8193
Andrew Jaques
Peter Hewer
Charles Hirst
Catherine Chapman
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