Blog: Sports Direct ups Umbro stake
Leonie Barrie | 31 October 2007
The one cloud on the horizon for Nike’s pending takeover bid of UK football firm Umbro was the joint 25.1% stake held by rival retailers Sports Direct International and JJB Sports. But as from yesterday, this becomes infinitely more complicated with the news that Sports Direct has nearly doubled its share in the business to 29.9%.
It’s a significant number. 29.9% is just below the 30% threshold at which a full takeover bid must be launched. And it means that Sports Direct on its own now has the power to veto any transaction, since it requires approval from 75% of Umbro shareholders.
So why has the retailer made this move? Some industry insiders say the company’s founder Mike Ashley is trying to protect supplies of Umbro merchandise – particularly replica England football shirts – to his stores. But it’s equally important that he keeps Nike on-side, since this trade is key to the entire Sports Direct business model which uses big-brand names to draw customers into its stores. In fact, one analyst goes so far as to suggest Sports Direct’s owner Mike Ashley “is playing a dangerous game.”
So is a counterbid from Sports Direct more likely? When Sports Direct bought US boxing brand Everlast for $183m earlier this year it said it planned to acquire more brands. The main barrier to this move would be the Football Association, the governing body for English football, to which Umbro is the exclusive supplier. The FA is unlikely to be happy to have one retailer and major stockist owning the Umbro brand.
But if negotiations with Nike fail, Sports Direct could invite another bidder for Umbro – a move that could lift the offer price. Ashley could also try to influence the takeover of Umbro by selling his stake to a rival buyer such as Adidas.
Options still open to Nike include changing the structure of the takeover offer to one that would require support from 40% of shareholders.
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