JJB slapped with fine for disclosure failures

By This Is Money
Updated: 10:46 EDT, 26 January 2011

JJB Sports has been fined for not disclosing the true cost of two acquisitions, which led to a 'false market' in its shares for nine months as a result.

Troubled: JJB recently revealed a sales decline in the run-up to Xmas and a £30m rights issue

The Financial Services Authority imposed a £455,000 penalty on the struggling sports retailer.

JJB bought Original Shoe Company in December 2007 for £5m in cash but did not reveal it paid an additional £10m for the stock in the stores.

And it announced the acquisition of footwear chain Qube in May 2008 for £1 in cash but did not say that it also paid the company's £6.5m overdraft.

JJB revealed the full cost of the acquisitions for the first time in its interim results in September 2008, when its share price fell by 49.5% amid doubts it could continue as a going concern.

The FSA said JJB had made a number of market statements in the intervening period but did not correct the position.

At the time the cash positions of listed companies were under growing investor scrutiny, and JJB's disclosure failures gave a 'false impression' of the cost of buying OSC and Qube, according to the watchdog.

FSA director of markets Alexander Justham said: 'JJB's failure to disclose information about the two acquisitions denied investors the ability to fully understand its financial position and make informed investment decisions. The repeated failure to disclose this information showed a lack of regard for the market, the disclosure rules and investors.

And he added: 'The action we have taken shows it is unacceptable to tell only part of the story whilst leaving material facts unannounced in the background.'

The FSA said the fine would have been 30% higher, at £650,000, if JJB hadn't agreed to settle at an early stage in the investigation

JJB pointed out that the offences took place two years ago under an entirely different management regime led by former chief executive Chris Ronnie, and prior to the company's restructuring.

It welcomed the 'finality' brought by the end of the FSA's investigation.

The Serious Fraud Office recently announced it would not bring any charges after an investigation into JJB and Sports Direct International over allegations of cartel activity between June 8 2007 and March 25 2009.

But the SFO is still investigating individuals in relation to allegations of anti-competitive practices.

An investigation by the Office of Fair Trading into anti-competitive behaviour in the sports retailing sector is also ongoing.

JJB, which operates nearly 250 stores and employs 6,300 staff, is in a battle for survival after it revealed that a major promotional drive had failed to deliver results.

The company reported that like-for-like sales decreased by 15.7% between November 8 and December 19.

Last month, the Wigan-based retailer announced it was to turn to investors, including the Bill & Melinda Gates Foundation Trust, to raise more than £30m in a rights issue. The group raised £100m from investors just over a year ago.

Its shares were down 2%, or 0.08p, at 4.52p in trading today.