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City watchdog slaps JD Sports & Footasylum a £5m fine for covert car park meeting

JD Sports and Footasylum have been slapped with a fine of almost £5 million for breaching the rules around a merger blocked by the CMA. The… View Article

FASHION

City watchdog slaps JD Sports & Footasylum a £5m fine for covert car park meeting

JD Sports and Footasylum have been slapped with a fine of almost £5 million for breaching the rules around a merger blocked by the CMA.

The Competition and Markets Authority (CMA) ordered JD last year to sell Footasylum – which it bought in 2019 for 86 million pounds – due to competition concerns. That order had barred the two firms from exchanging commercially sensitive information without prior CMA consent.

Upon review, the CMA found that both companies had severely deficient safeguards in place – so much so that they created an environment where information exchanges were almost inevitable.

It comes after JD sports executive Chairman Peter Cowgill was caught on camera meeting his Footasylum opposite number, Barry Brown, in a car park in Bury in July last year.

The CMA said: “During 2 meetings, which took place on 5 July 2021 and 4 August 2021, Peter Cowgill, CEO of JD Sports, and Barry Bown, CEO of Footasylum, exchanged commercially sensitive information and then failed to alert or promptly alert the CMA.”

During these meetings, they discussed: Footasylum’s issues with stock allocations from key brands, information about Footasylum’s financial performance, the planned closure of 6 Footasylum stores, with the locations of at least 2 being revealed, Footasylum’s contract negotiations with its transport and delivery provider and contract negotiations for the renewal of Footasylum’s head office space

The sharing of this information had the potential to affect competition in the market and lead to anti-competitive behaviour.

In addition to this, the companies’ subsequent failure to report these breaches significantly impacted the CMA’s ability to act swiftly to stop the information from being shared further, and increased the risk that it could impact future business decisions taken by the companies.

The companies have been fined nearly £4.7 million for the collective breaches, which are split as follows: for failing to have safeguards in place, JD Sports must pay £2.5 million and Footasylum £200,000. For sharing commercially sensitive information, and then failing to alert the CMA, JD Sports will be fined £1.8 million and Footasylum £180,000.

Kip Meek, Chair of the inquiry group investigating the merger, said: “There is a black hole when it comes to the meetings held between Footasylum and JD Sports. Both CEOs cannot recall crucial details about these meetings. On top of this, neither CEO or JD Sports’ General Counsel can provide any documentation around the meetings – no notes, no agendas, no emails and poor phone records, some of which were deleted before they could be given to the CMA.

“Had there been proper safeguards in place, we would have been alerted to these breaches in good time and would have had the necessary information to tackle them head on.

“It jeopardised our ability to maintain the benefits of a competitive market for shoppers and ensure there is a level playing field for other businesses. This fine should act as a warning – if you break the rules there will be serious consequences.”

Meek said the fine should act as a warning for the firms and pledged “serious consequences” if they break the rules.

In response to the CMA’s announcement, JD Sports said in a statement that “ultimately, JD does not believe that the description of events or the penalty that has been levied is a fair reflection of the Group’s efforts to ensure compliance with the Order.

“JD will now review the detail of the CMA’s decision although the Group has already taken swift action to implement additional measures to strengthen its processes in this area which now go well beyond what is legally required by the CMA.”

JD also said that it believes that a number of the further conclusions which the CMA have drawn are “either incorrect or have been presented in a misleading manner through the use of inflammatory language.”

“In particular, JD notes that the CMA are suggesting, for the first time, that phone records have been deleted and, whilst JD accepts that some phone records were not available, it absolutely refutes any allegation that this was due to records being deliberately deleted.”

“In this regard, JD can also confirm that it voluntarily submitted all of its relevant devices to a third party for expert forensic analysis.”

Separately, the retailer said it will “continue to work constructively with the CMA on the process to divest Footasylum in line with the CMA’s decision in November 2021.”

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