Takeover speculation as Ashley buys JJB shares
Oct 21 2008 by Iain Laing, The Journal
NEWCASTLE United owner Mike Ashley’s sportswear company has bought another £3.4m in shares in rival JJB Sports and fuelled speculation that he will make a bid for the whole company.
Sports Direct International bought 11.9 million shares in struggling JJB for 28.5p, but the stock jumped as high as 40p following news of the cash injection – giving Ashley’s company an immediate paper profit.
Some analysts now believe Ashley will try to buy the whole of JJB as he now has an overall 22% interest in JJB as it also has contracts for difference – a form of derivative – on 42.9 million JJB shares. But the company has a history of buying shares in competitors, having taken 13% of JD Sports and 29% of surfwear and outdoor clothing business Blacks Leisure.
It said the JJB move fitted with its policy of making investments where it stood to “gain a strategic or commercial advantage”.
Analyst Andrew Miller, Newcastle office manager of Barclays Wealth, said: “He’s a difficult man to read, both at Newcastle Utd and Sports Direct. This could give him the opportunity to make a bid, there could certainly be synergies between the firms.
“But he has built up a number of stakes in rival firms before without making a bid. He knows this industry very well and he could really just be making a strategic investment and buying shares while they are a good price.” The deal will also reunite him with JJB chief executive Chris Ronnie, who was previously Ashley’s right-hand man at Sports Direct.
Ashley was rumoured to have helped Ronnie buy a stake in the company last year from previous owner Dave Whelan.
Ronnie said the stake sale is “attractive for both parties” and “will put JJB on a more secure financial footing”. JJB’s shares have come under pressure in recent weeks after its auditors cast doubt over its ability to carry on as a “going concern” and credit insurers withdrew coverage for its suppliers.
Panmure Gordon analyst Philip Dorgan described the latest investment as “curious”.
He said: “Quite what commercial or strategic advantage it hopes to achieve is not plain to see. Perhaps it is best to believe that Sports Direct sees an opportunity to make money in a share price that has fallen dramatically from a 12 month high of 175p to as low as 11p.”
JJB was given a boost last week after it said “constructive discussions” were under way with lenders Barclays and Halifax Bank of Scotland over its debts, which stood at £57.6m at the end of July. It recently posted half-year losses of £9.7m and its auditors said there was “significant doubt” about its ability to continue as a going concern. Wigan-based JJB, which has 400 stores, has also been hit by credit insurer Coface refusing to cover suppliers against the risk of it going bust.
JJB confirmed last week it had received an approach for its Lifestyle division, which includes Qube and Original Shoe Company.
