JD Sports’ acquisition of Footasylum could be back on after the Competition and Markets Authority’s (CMA) decision to block the deal was sensationally quashed.
The Competition Appeal Tribunal (CAT) today overruled the watchdog’s decision in a stunning verdict. It is only the second time since the CMA was formed that any of its judgements have been overturned.
Retail Week understands the deal is now likely to be subject to a second CMA investigation, which would be conducted by the same panel that led the first one.
The CMA said it was “considering its next steps” following the CAT decision.
The authority controversially blocked JD’s acquisition of footwear rival Footasylum in April, after ruling that the combination would result in shoppers receiving “fewer discounts” and “lower quality customer service”.
The CMA said at the time that although coronavirus was “significantly affecting the sector”, it did not find evidence that the impact of the pandemic would “remove its competition concerns”.
JD appealed against the CMA’s decision, arguing that the authority “acted irrationally” and failed to gather enough information regarding the impact of the Covid-19 crisis on the Footasylum business.
The retailer also claimed the CMA did not fully recognise “the constraint on the merged entity posed by Nike’s and Adidas’ own direct-to-consumer retail offer”, and argued the watchdog’s analysis of the effects of the JD-Footasylum merger on competition was too broad.
Although the CAT threw out the appeal on the latter grounds, it agreed the CMA did not go far enough in its information gathering when it came to the impact of the pandemic, nor in recognising the likely impact of Nike and Adidas’ DTC ambitions.
The CAT judgement said: “The tribunal concluded that both in relation to the failure to follow up inquiries with suppliers and the failure to make direct inquiries of Footasylum’s primary lender, the CMA acted irrationally in that it came to conclusions as to the likely effects of the Covid-19 pandemic, that were of material importance to its overall decision, without having the necessary evidence from which it could properly draw those conclusions.”
JD Sports executive chairman Peter Cowgill said: “We have always maintained that this merger would provide significant long-term benefits to customers, colleagues and brand partners, and so we are very pleased with the Competition Appeal Tribunal’s judgment today.
“The entire case will now go back to the CMA for re-consideration and we look forward to presenting further evidence which demonstrates the true extent to which the competitive landscape has evolved, in particular as a result of the unprecedented challenges caused by the COVID-19 pandemic.”
CMA chief executive Andrea Coscelli said: “The CMA welcomes the tribunal’s strong endorsement of its approach to making sure that mergers don’t leave UK shoppers worse off. Today’s judgment reinforces the way in which we analyse and assess the evidence we receive in these cases, and the decisions we make to protect consumers.
“However, we are disappointed that the tribunal disagreed with the CMA’s approach to information gathering about the specific impact of coronavirus on the sector given the circumstances at that time.
“We will now take stock of today’s judgement and carefully consider our next steps, including whether to appeal.”