JD Sports buys Footasylum stake, shares surge but it won't make an offer
Sports retail giant JD Sports Fashion sent much smaller peer Footasylum’s shares up almost 66% on Monday after the company said that it had bought a stake in the struggling firm.
Footasylum, which listed with high hopes back in November 2017, has issued a string of disappointing updates in recent periods and its share price has plummeted as a result. But JD Sports clearly sees a bargain there and reported that it had acquired a stake of 8.3% in the firm.
That’s far from a controlling interest but is nonetheless significant. Does it mean JD has ambitions to take over Footasylum? It says not.
The company insisted that it “has acquired this stake for investment purposes. JD Sports is prepared to acquire up to an aggregate interest of 29.9% and confirms that it is not intending to make an offer for Footasylum.”
That 29.9% figure would represent the point at which it can buy a stake without being forced to make a full offer for the firm.
It’s a crucial deal for Footasylum, which has had endless copy written about it in recent months questioning its future. However, as the share price rise shows, the fact that such a canny retailer as JD Sports seem to think it does have a future, and was keen to get in while it was cheap, is a real confidence booster for the firm (and its beleaguered shareholders).
Last September the company issued a profit warning and panic-selling of its shares sent the price down almost 50%. And while its interim results a month later showed sales up in double-digits, discounting was clearly a factor and it made an adjusted pre-tax loss of £4 million.
It said at the time that trading was still tough and the picture was repeated over the Christmas period with higher sales but a gross margin“lower than previously anticipated, due to higher than expected levels of promotional and clearance activity.”
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