The Competition and Markets Authority (CMA) is set to maintain its stance on JD Sports’ acquisition of Footasylum despite the damaging impact coronavirus has had on the latter’s finances.
Retail Week understands the watchdog has shown no intention of reversing its provisional findings into the deal, despite representatives of JD Sports and Footasylum making what amounts to a ‘failing firm’ claim due to lost revenues as a result of the coronavirus lockdown.
The CMA effectively blocked the £90m acquisition in February, saying that it could force JD Sports to sell the Footasylum business amid competition concerns.
However, the CMA last week reneged on its reservations into Amazon’s purchase of a minority stake in Deliveroo, amid fears that the online food delivery platform would go bust without the cash injection.
It sparked hope that the CMA could relax its hardline stance on other retail M&A activity. Earlier today, the watchdog updated its merger assessments criteria and its position on deals involving “failing firms” during the coronavirus pandemic.
The CMA said it “is conscious of the challenges that coronavirus brings for businesses involved in CMA investigations and will seek to take these into account where it can”.
However, it said its “overall approach to assessing the circumstances in which a merger causes competition concerns remains unchanged”.
Sources close to the JD Sports-Footasylum inquiry told Retail Week the watchdog has not changed its position on that deal, despite new evidence being submitted.
One industry source with knowledge of the case said that the forced closure of Footasylum’s 65 stores has plunged the already struggling footwear specialist into even deeper trouble, and suggested a tie-up with JD Sports was the only way to save the brand.
But the source added that the CMA has not “softened its fairly militant rhetoric” in its post-lockdown discussions with the two retailers.
“The fact is a retailer like Footasylum wouldn’t have survived if it had been on its own when the coronavirus hit,” the source said. “Furlough and rent reliefs are one thing, but it’s the longer-term that the CMA should really think about. Customers are frightened and trainers are a discretionary spend item that’s just been swept away.”
The CMA is will deliver its final verdict on the acquisition by May 11, but its decision could be published before the end of April.
JD Sports and the CMA both declined to comment.
Head of EU competition and public sector at law firm DWF Jonathan Branton said ‘failing firm’ claims were notoriously hard to prove. He cautioned that the CMA would not fundamentally change how it judges mergers and acquisitions as a result of the pandemic.
“Although people can’t go into retail stores, online sale of a pair of a trainers is still just as possible as it ever was and the market was moving in that direction anyway,” Branton said. “Yes, coronavirus is making a difference, and the CMA will take it into account, but I would not view it as an indication that everything is going to change.”