In the money: JD lines up JJB offer
By Joe Ayling | 3 February 2011
JD's interest offers a ray of hope for JJB
It only takes a look back in time to see why JJB Sports is keen to discuss a takeover offer from rival JD Sports Fashion, after what has been a turbulent few years for the Wigan-based sporting goods retailer.
News broke this week of JD's discussions with the JJB board over a possible offer, which would shake up the UK sportswear market currently led by Mike Ashley's Sports Direct chain.
Analysts believe JD can turn around the fortunes of JJB, which continues to post slumping sales and narrowly missed going into administration just last year.
"JD Sports Fashion has proven to have a very successful business model and while it is more fashion focused than JJB, has the knowledge and expertise of the sports market to help the business succeed," explains Sarah Peters, senior retail analyst at Verdict.
"JJB has just under 250 stores and any purchase by JD Sports Fashion would undoubtedly be a massive task for it, particularly given JJB’s struggles over recent years.
"There would also be some overlap in store locations – which JD Sports Fashion would have to consider carefully. However, in the long term both businesses would benefit through extra efficiencies and gains in scale. It would also provide JD Sports Fashion with the opportunity to further expand its own label business."
Readers of just-style will be all too familiar with the turbulent story of JJB, which has felt the full wrath of the UK's economic turmoil.
Just this week, the company said it was to raise gross proceeds of GBP31.5m (US$50.8m) through a placing to provide short-term working capital.
"This fund-raising will provide JJB with the short-term funding it needs while we finalise plans for a further restructuring and refinancing.," says Mike McTighe, JJB chairman. "Trading remains challenging but we are convinced that JJB can have a successful future once it has been restructured."
JJB has long been exploring ways to find a sound financial footing, frequenting the London Stock Exchange (LSE) with promising solutions.
Last year, for instance, the retailer was on the verge of going into administration, only to be rescued by the acceptance of a Company Voluntary Agreement (CVA) aimed at reducing its potential losses.
More recently, JJB said in a LSE filing that the UK's Financial Services Authority (FSA) had fined it GBP455,000 for "failing to disclose information to the market about the true cost of two acquisitions". This related to the retailer's acquisition of Original Shoe Company (OSC) for GBP5m in 2007 and Qubefootwear Ltd (Qube) for GBP1 a year later.
JJB blamed the fine on its old management team, but it was another half million the company desperately needs during a tough trading period. Indeed, freezing temperatures hit pre-Christmas sales in the UK, leaving JJB struggling to meet the terms of a major bank loan.
Therefore, talk of a potential bid from JD Sports, whose fortunes have mirrored JJB in recent times, should come as no surprise.
Meanwhile, Sports Direct - masters of the 'stack 'em high, sell 'em cheap' retail format and the UK's leading sportswear company - will be looking over its shoulder at the possibility of a rejuvenated JJB emerging from this potential takeover.
Peters adds: "Any purchase could also be a threat to Sports Direct, which will have benefited from JJB’s recent struggles."
As both JD and JJB both stress, there is "no certainty that any offer will be made." But the latter seems to be running short of other options.
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In the money: JD lines up JJB offer