JD Sports, Footasylum fined £5m over blocked merger

JD Sports executive chairman Peter Cowgill

The UK’s Competition and Markets Authority (CMA) announced that Bury-based FTSE 100 retailer JD Sports Fashion Plc and Rochdale-based Footasylum have been fined almost £5 million “after breaching the rules around a merger blocked by the CMA.”

The CMA said the breaches include the sharing of commercially sensitive information between the CEOs of JD Sports and Footasylum.

It said the failure to have proper safeguards in place made breaches “almost inevitable” and that both CEOs claimed they could not remember what had been discussed during meetings.

“During two meetings, which took place on 5 July 2021 and 4 August 2021, Peter Cowgill, CEO of JD Sports, and Barry Bown, CEO of Footasylum, exchanged commercially sensitive information and then failed to alert or promptly alert the CMA,” said the CMA.

During these meetings, the CMA alleged the CEOs discussed Footasylum’s issues with stock allocations from key brands, information about Footasylum’s financial performance, the planned closure of six Footasylum stores, Footasylum’s contract negotiations with its transport and delivery provider, and contract negotiations for the renewal of Footasylum’s head office space.

“The sharing of this information had the potential to affect competition in the market and lead to anti-competitive behaviour,” said the CMA.

“In addition, the companies’ subsequent failure to report these breaches significantly impacted the CMA’s ability to act swiftly to stop the information from being shared further, and increased the risk that it could impact future business decisions taken by the companies.”

The FCA’s Kip Meek, chair of the inquiry group investigating the merger, said: “There is a black hole when it comes to the meetings held between Footasylum and JD Sports.

“Both CEOs cannot recall crucial details about these meetings.

“On top of this, neither CEO or JD Sports’ General Counsel can provide any documentation around the meetings – no notes, no agendas, no emails and poor phone records, some of which were deleted before they could be given to the CMA.

“Had there been proper safeguards in place, we would have been alerted to these breaches in good time and would have had the necessary information to tackle them head on.

“It jeopardised our ability to maintain the benefits of a competitive market for shoppers and ensure there is a level playing field for other businesses.

“This fine should act as a warning – if you break the rules there will be serious consequences.

“Once the CMA was made aware of the meetings, it used its information gathering powers to try and develop a clearer picture of what had taken place.

“It requested details from both companies on the number of meetings that had occurred between the companies since July 2020; the topics discussed; any documents involved; and any steps that had been taken to prevent commercially sensitive information being exchanged.

“Despite the firms being legally required to respond to these requests, both failed to provide the CMA with all the information it asked for by saying that, at one meeting in December 2020, no documents were exchanged, when this was in fact not true.

“This impacted the CMA’s ability to conduct its investigation, for which each company have been fined £20,000.

“The companies have been fined nearly £4.7 million for the collective breaches, which are split as follows: for failing to have safeguards in place, JD Sports must pay £2.5 million and Footasylum £200,000.

“For sharing commercially sensitive information, and then failing to alert the CMA, JD Sports will be fined £1.8 million and Footasylum £180,000.”

In response, JD Sports said in a stock exchange statement: “The Competition and Markets Authority (CMA) has today imposed a penalty of £4.3 million on JD Sports Fashion PLC for failure to comply in certain respects with an Interim Order issued by the CMA on 19 May 2021 as part of the CMA’s review of the Footasylum acquisition.

“JD has been subject to hold separate measures in relation to Footasylum since May 2019 and balancing the obligations of separation and business stability over such a long period, which has also coincided with the COVID-19 pandemic, has been complex and not without challenge.

“At no point has there been any intention to breach the rules although JD does accept that, inadvertently, it was in receipt of limited commercially sensitive information and that this was not reported to the CMA immediately.

“However, JD believes that a number of the further conclusions which the CMA have drawn are either incorrect or have been presented in a misleading manner through the use of inflammatory language.

“In particular, JD notes that the CMA are suggesting, for the first time, that phone records have been deleted and, whilst JD accepts that some phone records were not available, it absolutely refutes any allegation that this was due to records being deliberately deleted.

“In this regard, JD can also confirm that it voluntarily submitted all of its relevant devices to a third party for expert forensic analysis …

“Ultimately, JD does not believe that the description of events or the penalty that has been levied is a fair reflection of the group’s efforts to ensure compliance with the order.

“JD will now review the detail of the CMA’s decision although the group has already taken swift action to implement additional measures to strengthen its processes in this area which now go well beyond what is legally required by the CMA.

“Separately, JD will continue to work constructively with the CMA on the process to divest Footasylum in line with the CMA’s decision in November 2021.”

About the Author

Mark McSherry
Dalriada Media LLC sites are edited by veteran news journalist Mark McSherry, a former staff editor and reporter with Reuters, Bloomberg and major newspapers including the South China Morning Post, London's Sunday Times and The Scotsman. McSherry's journalism has also appeared in The Washington Post, The Guardian, The Independent, The New York Times, London's Evening Standard and Forbes. McSherry is also a professor of journalism and communication arts in universities and colleges in New York City. Scottish-born McSherry has an MBA from the University of Edinburgh and a Certificate in Global Affairs from New York University.