JD takes a shot at JJB Sports deal

By This Is Money
Updated: 07:56 EDT, 2 February 2011

Shares in JJB Sports have surged as it emerged the troubled retailer could be swallowed by larger rival JD Sports Fashion.

Sales decline: JJB has been struggling with deteriorating trade

The two firms confirmed they were in an early stage of takeover talks but warned there was no certainty a deal would be reached.

JJB's stock was up 18%, or 0.81p, at 5.41p in trading today. JD's shares edged up 1p to 848.5p.

If JD acquires its struggling rival it could create a 700-store high street sportswear giant.

JJB is battling for survival in the face of deteriorating trade and as it looks to raise £31.5m from shareholders - which include the Bill & Melinda Gates Foundation Trust.

The firm, which employs 6,300 staff in more than 250 stores, reported an 11.1% decline in like-for-like sales from December 20 to January 23 after a similarly dismal performance over Christmas.

In contrast, JD Sports maintained like-for-like growth through the weather-hit festive season. It has around 350 stores under the JD and Size? brands, as well as 100 other outlets plus 75 Chausport shops in France.

At £30m, JJB Sports is valued at considerably less than JD's market value of £400m.

Analysts said JD could afford a takeover. Mark Photiades of broker Singer Capital said the entire exercise could cost JD up to £100m to complete.

'We believe that JD will have been looking at JJB Sports since their troubles began and will be looking to take advantage of the business's current weakness,' he said.

However, Mr Photiades also said competition concerns may be raised, considering the 12% share Mike Ashley's Sports Direct holds in JD.

But Freddie George, retail analyst at Seymour Pierce, said there was little overlap in the store formats as JD's format is focused on sports fashion where JJB is striving to be viewed as a sportswear specialist.

He said: 'JJB Sports' current trading had been very weak and it was clear the company needed further funding to survive. However, we believe there would be significant opportunity for synergies between the two businesses.'

Meanwhile, Sarah Peters of retail research firm Verdict said any purchase would be a 'massive task' for JD and it would have to carefully consider some overlap in store locations.

But she said: 'JD Sports Fashion has proven to have a very successful business model and while it is more fashion focused than JJB, has the knowledge and expertise of the sports market to help the business succeed.

And she added: 'Any purchase could also be a threat to Sports Direct, which will have benefited from JJB's recent struggles.'

In the last couple of years, JJB has been the subject of separate investigations by the Serious Fraud Office, the Office of Fair Trading and the Financial Services Authority.

The Wigan-based retailer recently revealed that a major promotional drive failed to deliver results.