Completed acquisition by Sports Direct International plc of a number of stores from JJB Sports plc

Affected market: Sports retailing

No. ME/3986/08

Please note that the full text of the decision can be downloaded by using the link on the right. What follows are extracts regarding the parties, the transaction, jurisidction, third party views, assessment and decision.

The OFT's decision on reference under section 22 given on 1 May 2009. Full text of decision published 21 May 2009.

Please note that square brackets indicate figures or text which have been deleted or replaced at the request of the parties for reasons of commercial confidentiality.

PARTIES

Sports Direct International plc ('SDI') is the UK's leading sports retailer by revenue and operating profit, and the owner of a significant number of internationally recognised sports and leisure brands, operating approximately 375 retail outlets in Great Britain. The majority of retail outlets trade under the Sports Direct or Sports World fascias. SDI has acquired a number of retail businesses over the last few years, and some retail outlets still trade under their previous names, such as Lillywhites, McGurk, Exsports, Gilesports, Sports Soccer, Field and Trek, and Hargreaves.

In addition, SDI currently holds a 29.4 per cent stake in Blacks and a 25 per cent holding in each of Sweatshop and SheRunsHeRuns. The OFT considers that, in accordance with the OFT's Guidance and the established practice of the OFT and CC in relation to determining material influence for the purposes of section 26 of the Enterprise Act 2002 ('the Act'), absent any evidence to the contrary, it is or may be the case that SDI has material influence in relation to all three retailers (Blacks, Sweatshop and SheRunsHeRuns), as the level of SDI's shareholding in each would be very likely to provide it with the ability to block special resolutions at shareholder meetings.

JJB Sports plc ('JJB') is one of the UK's leading high street sports retailers. As of 27 January 2008, JJB operated approximately 400 retail outlets in the UK - although the OFT is conscious that this reduced through 2008/09. JJB also operates a chain of combined fitness clubs with attached retail store space. However, the OFT understand that arrangements are in place to dispose these to Dave Whelan Sports Limited. JJB reported a pre-tax loss of £9.7 million for the first half of 2008.

TRANSACTION, PROCESS AND TIMING

The transaction concerns the completed acquisition by SDI of 31 retail outlets from JJB which took place between 5 November 2007 and 1 December 2008 ('Acquired Stores' or, individually, 'Acquired Store'). 
 
The OFT became aware of the transaction through an own-initiative investigation by the Mergers Intelligence Unit in December 2008. The extended statutory deadline under section 24 of the Act is Monday 4 May 2009.

JURISDICTION

The OFT considers that the acquisition by SDI of 31 retail outlets from JJB constitutes enterprises ceasing to be distinct for the purposes of section 23(1) of the Act.

Section 27(5) of the Act provides that the OFT may treat successive events as having occurred simultaneously on the date in which the latest of them occurred. Section 27(6)(a) of the Act adds that a 'successive event' can occur within a two year period under consequence of the same arrangement or transaction, or successive arrangements or transactions between the same parties. In this case, the date of the latest retail outlet acquisition was 1 December 2008.

Given that the Acquired Stores had UK turnover in its last financial year of approximately £[ ], the turnover test in section 23(1)(b) of the Act is not met.

However, the OFT believes that it is or may be the case that the share of supply test in section 23(2)(b) of the Act is met and, therefore, that a relevant merger situation has been created. This is because SDI's share of supply of goods by national sports retailers ('Sports Multiples', that is, SDI, JJB and JD Sports) in the UK, by number of outlets, in 2007 was 33 per cent. In this case, the acquisition of 31 retail outlets from JJB represents an increment of approximately 2.5 per cent.

In addition, the OFT believes that the share of supply test may also be met through the combination of SDI and the Acquired Stores' share of supply in the UK of sports clothing retail, which is also estimated to be greater than 25 per cent. SDI alone has a share of supply of all sports clothing retail in the UK of 24.9 per cent measured by sales and the OFT estimates that the increment arising from this transaction is approximately 1 per cent on the same basis.  

For all of these reasons, the OFT therefore believes that it is or may be the case that a relevant merger situation has been created.

ASSESSMENT

SDI and the 31 JJB Acquired Stores overlapped in the supply of sports clothing, sports equipment and sports footwear.

At the national level, the acquisition has not resulted in a reduction in the number of national sports retailers, or Sports Multiples. Based on the minimal increment of SDI's turnover (approximately 4 per cent) or the number of its retail outlets, the OFT does not believe that the acquisition by SDI of 31 JJB retail outlets raises any national competition issues.

The OFT considers that local competition could be lost by the acquisition. At the local level, in order to concentrate its assessment on areas raising potential competition issues, the OFT applied a filter to identify those areas where the acquisition would lead to fascia reduction. The application of that filter removed 11 non-overlap locations that did not raise any competition concerns. In addition, the OFT was able to remove an additional 14 areas on the basis of the distance between the Acquired Store and existing SDI locations (and therefore the limited constraint exerted by the retail outlets on each other).

In respect of the six locations where the acquisition did give rise to a reduction in the number of 'national' fascia at the local level, the OFT considers that the reference test is met in relation to five areas, namely, Basildon, Llanelli, Newport, Harrogate and Isleworth on the basis of a lack of geographically close alternative (non-national) retailers in each area.

New entry and threat of entry can also represent important competitive constraints on the behaviour of the SDI. However, entry must be timely, likely and sufficient in scale or character to replicate the competition lost in relation to the five local areas where the reference test is met. Based on the evidence before it, the OFT does not believe that entry in Basildon, Llanelli, Newport, Harrogate and Isleworth is timely, likely or sufficient.

Consequently, the OFT believes that it is or may be the case that the merger has resulted or may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom.

DECISION

The OFT has therefore decided to refer the completed acquisition by SDI of a number of retail outlets from JJB to the Competition Commission pursuant to section 22 of the Act. However, the OFT's duty to refer is suspended because the OFT is considering whether to accept undertakings in lieu of reference from SDI pursuant to section 73 of the Act. 

Back to top