JD Sports has been thwarted in its plan to acquire Footasylum.
The U.K.’s watchdog organization, the Competition and Markets Authority, issued a ruling today blocking the 2019 merger between the two companies because it would lessen competition in the market and “would leave shoppers with fewer discounts or receiving lower quality customer service,” according to a CMA statement.
As part of its decision, JD Sports will have to divest its ownership in Footasylum and sell to an approved buyer.
Peter Cowgill, executive director of parent company JD Sports Fashion Plc, was vocal in his disapproval. “We fundamentally disagree with the CMA’s decision, which continues to rely on an inaccurate and outdated analysis of the U.K. sports retail competitive landscape, and is underpinned by outdated and flawed customer surveys,” he said in a statement.
JD Sports announced in March 2019 that it would buy the remaining shares of Footasylum PLC in a cash deal worth 90.1 million pounds (or $111.59 million at current exchange). The deal came on the heels of a year of plunging profits and traffic for Footasylum, which, according to the CMA, commanded a mere 5% of market share.
However, the CMA stated that after a months-long review of the operations of both companies and after surveying more than 10,000 customers, it found there was too much overlap between the businesses for a merger to go forward.
“We never take decisions to block mergers lightly, but in this case the evidence has shown it is necessary for JD Sports to sell Footasylum, so that they can continue to compete against each other as independent businesses,” said CMA chair Kip Meek in a statement.
In its response, JD Sports argued that the CMA failed to take into account the way that the coronavirus outbreak is altering the athletic retail market amid widespread store closures and making survival more difficult for mid-size chains like Footasylum (which has roughly 65 locations across the U.K.).
Market analysts agree that the pandemic will have a devastating affect on the shoe industry.
“The U.K. clothing and footwear market is forecast to decline by 30.1% in 2020 as a result of the COVID-19 pandemic, with footwear expected to be the worst performing of the two sectors,” said Pippa Stephens, retail analyst at analytics company GlobalData.
She noted that without JD Sports’ robust financial support, Footasylum is at risk. “The footwear specialist may not prove to be strong enough to stand on its own two feet in the future, given the impact of COVID-19,” said Stephens.
JD Sports said it is considering filing an application with the Competition Appeal Tribunal to review the decision.