Aug 7, 2009
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Sports Direct faces competition probe on JJB buys

Aug 7, 2009

LONDON, Aug 7 (Reuters) - Sports Direct (SPD.L), Britain's biggest sporting goods retailer, faces an investigation by regulators into its purchase of 31 stores from rival JJB Sports (JJB.L) after failing to find a buyer for five of the shops.

The new Celtic away strip at Sports Direct - Photo: www.sportsdirect.com

Shares in Sports Direct, which is controlled by Mike Ashley, the billionaire owner of Newcastle United soccer club, fell 4 percent in early Friday (7 August) trade on concerns it might be forced to keep the five shops empty while still paying rent.

Britain's consumer affairs watchdog, the Office of Fair Trading (OFT), had called on Sports Direct to sell the five stores because of concerns competition would be restricted in their localities.

The OFT said on Friday 7 August that Sports Direct had not managed to find a buyer and had made no significant progress towards a deal.

As a result, it had referred Sports Direct's purchase of all 31 JJB stores, which were carried out over a two-year period, for further investigation by the Competition Commission.

"Although the exact details of the stores under the spotlight is unclear, we believe it unlikely that the annual liability to Sports Direct from unmitigated occupancy costs would exceed 1.5 million pounds ($2.5 million)," Singer analyst Matthew McEachran said in a research note.

"Nonetheless, this news could weigh on the shares which have performed well over the last quarter (up 32 percent)."

At 0752 GMT, Sports Direct shares had recovered the bulk of initial losses to trade down 1.1 percent at 90 pence, valuing the business at about 525 million pounds. JJB shares, initially unchanged, fell 2 percent to 25.25 pence.

Singer's McEachran said there was also the possibility of more drastic action from the Competition Commission that could affect all 31 stores.

He added it was unclear whether the leases might revert to JJB, which is downsizing after coming close to administration earlier this year.

Sports Direct, which owns Sports World and Lillywhites stores as well as brands such as Slazenger, Lonsdale and Dunlop, declined to comment. JJB had no immediate comment.

(Reporting by Mark Potter; editing by John Stonestreet)

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