Is This Company on the Verge of Buying Finish Line?

Finish Line
Finish Line at The Mall at Millenia in Orlando, Fla.
Finish Line

U.K. sporting goods mega-firm Sports Direct International Plc is taking a bigger bet on Indianapolis-based specialty athletic retailer The Finish Line Inc.

According to a filing with the U.S. Securities and Exchange Commission today, Sports Direct has increased its interest in Finish Line from 7.9 percent — as reported in a filing in April — to 17.4 percent.

Today’s filing states that Sports Direct now has an indirect economic interest in more than 7 million Finish Line shares. (Sports Direct holds an indirect economic interest in the shares through a derivative known as a contract for difference. The UK firm does not have voting power or beneficial ownership of shares.)

When it was revealed, in April, that Sports Direct had taken a significant position in Finish Line — to the tune of 3 million shares — at least one analyst said that he believed Sports Direct’s decision portended a full-on takeover of the retailer.

It appears to us that Sports Direct is actively making an effort to purchase Finish Line, despite the fact that no mention of an active position was mentioned in the [SEC] filing,” Susquehanna Financial Group LLP analyst Sam Poser wrote two months ago. “The purchase of all of Finish Line would provide leverage for Sports Direct’s total operation as well as provide better vendor terms from the likes of Nike, Adidas, Under Armour and others.”

Still, Poser said he didn’t see a Sports Direct buyout bringing Finish Line out of the woods.

Given the strength of Foot Locker Inc., we do not believe that Sports Direct’s involvement or possible takeover would result in material improvements to Finish Line’s business,” he wrote. “However, shareholders would likely benefit from an attempt to buy Finish Line.”

Finish Line — which offloaded its running specialty business, JackRabbit, in January, in an attempt to rationalize its portfolio — posted disappointing fourth-quarter results, while its fiscal guidance signaled that weakness would continue throughout fiscal 2017.

According to its website, Sports Direct operates 700 stores in the U.K. and continental Europe, and 80 premium lifestyle stores in the U.K. Its portfolio of brands includes Slazenger, Everlast and Kangol.

Last year, the company — the brainchild of sportswear tycoon Mike Ashley — seemed to make a similar play for then-embattled management firm Iconix Brand Group.

In November 2015, Sports Direct began quietly purchasing huge chunks of Iconix shares. Eventually, the company caused quite a stir when SEC filings revealed that by mid-January 2016, it had snapped up an indirect economic interest in 14.4 percent of Iconix’s shares. The result was industrywide speculation of a takeover.

In late January 2016, Iconix announced that it had adopted a short-term shareholder-rights plan, or a “poison pill,” to protect the interests of the company and its shareholders.

The plan was aimed at “reducing the likelihood that any person or group gains control of Iconix through open-market accumulation or other tactics without paying an appropriate control premium and providing the board and shareholders with time to make informed decisions,” according to a document filed with the SEC.

Although it never named Sports Direct specifically, Iconix said adopting a poison pill was necessary after recent activity in the company’s shares, “including the recent accumulation of meaningful positions by holders of derivative securities, and what the Iconix board and management believe is a currently depressed share price for the company’s common stock.”

Sports Direct has acted aggressively over the past few years to snap up new businesses — including bankrupt Eastern Outfitters, which it is attempting to buy out of bankruptcy — and add them to its expanding portfolio. At the same time, the self-proclaimed No. 1 sports retailer in the U.K. has taken investment stakes in several companies, including JD.com and French Connection, without escalating its role to ownership.

Finish Line ended the trading day Monday with its shares up 1.6 percent, to $14.12.