Struggling retailer JJB Sports looks set to be snapped up by rival Sports Direct International, although fears have been raised that a deal might see at least half of its stores closed and hundreds of jobs put at risk.
Sports Direct, founded by Newcastle United owner Mike Ashley, is believed to be close to arranging to buy the most profitable stores from JJB under a “pre-pack” administration.
The deal, which may be announced as early as today, could see more than half of JJB’s 180 stores closed, but it is believed the Office of Fair Trading (OFT) would launch an investigation into any attempt by Sports Direct to buy its nearest rival. The OFT has previously looked into Sports Direct’s interests in JJB, including the acquisition of 31 stores between 2007 and 2008.
Sports Direct used to own a stake in JJB, but sold this three years ago. The firm recently announced a 20.4 per cent jump in gross profits for the 13 weeks to 29 July to £211.1 million, on total sales 25.3 per cent higher at £519m.
Despite an impressive run of results at the sportswear chain, shareholders voted down a proposal to hand Ashley eight million shares worth around £24m if the company’s profits rise to £340m in 2015.
Wigan-based JJB, which currently employs about 4,000 staff, put itself up for sale at the end of last month after failing to secure the funds needed to overhaul its stores.
It confirmed last week it was holding talks after receiving offers from “a number” of potential suitors as it seeks to secure the future of the firm.
The group has already warned shareholders, including the Bill and Melinda Gates Foundation, that they are likely to see their stakes wiped out under any rescue deal.
It is now understood that JJB will not be able to ward off administration, but is working towards a pre-pack arrangement, which will allow it to be sold on immediately.
This would allow Sports Direct to jettison loss-making stores but avoid the damaging impact of a prolonged administration. The retailer declined to comment yesterday, as did KPMG, which is handling the sale process.
Sports Direct also holds a stake of almost 12 per cent in JD Sports, which held tentative takeover talks with JJB last year before walking away. JD bought the trading assets of Blacks Leisure for £20 million in a pre-pack deal in January after the outdoor goods chain fell into administration.
Other companies interested in buying JJB are thought to include private investment firm OpCapita and French sporting goods retailer Decathlon.
Private equity firm Better Capital, founded by venture capitalist Jon Moulton, was tipped as an early front-runner to buy the chain but it did not submit a bid by a 7 September deadline.
Wigan Athletic owner David Whelan, who started JJB with a single store in 1971 before standing down from the board in 2007, has also asked for information on the sale. Whelan set up rival DW Sports in 2009, when he acquired 52 fitness clubs and attached retail stores from JJB for £83.4m.
JJB secured its most recent lifeline in April when it landed £20m from US retailer Dick’s Sporting Goods and a further £10m from existing shareholders.
It earmarked £20m for converting 60 of its most important stores in 2012 and 2013 into a new format that produced improved sales and margins during trials, but it admitted last month that continued poor trading meant it would need additional funds.