Takeovers and mergers: JD Sports and the Blacks Leisure Headache

Back in January 2012, the administrators of Blacks Leisure agreed to sell the remaining 300 stores to JD Sports for around £20million. Blacks Leisure was one of several high profile retail failures at the end of 2011, but JD Sports obviously saw some potential in the takeover. Five months later, it looks like the takeover might be proving to be less attractive than management first thought.

In the first three weeks of ownership by JD Sports, Blacks Leisure made a loss of £2.2million and JD have announced that they now expect those losses at Blacks to reach at least £15million in the first year of ownership. Those losses must be added to the £20million investment to gain a sensible view about the total amount that JD shareholders have put at risk in the takeover.

What has gone wrong? Did JD Sports do sufficient due diligence before agreeing to the price? Why are so many problems coming out of the woodwork now? Shareholders will be wanting answers.

JD management point to several significant problems which they have discovered since taking control, including a lack of stock (which could easily have been checked in due diligence) and an “excessively large and over-rented store portfolio”.

It looks like JD shareholders might have to be very patient before this takeover starts to even begin to generate some kind of return on investment. For example look at this quote: source

JD Sports said Blacks could return to profit in the medium term, but Seymour Pierce retail analyst Freddie George warned this is unlikely until 2015 at the earliest.

Could return to profit? Are JD shareholders really expected to have to suffer 2-4 more years of losses at Blacks, together with the inevitable disruption and distraction that a failing takeover imposes on management? This is beginning to look a little like the disastrous takeover by Clinton Cards of the Birthdays Group which was a millstone around Clinton Cards until it finally went bust in 2012.

http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/9199827/JD-Sports-takes-hit-from-Blacks-Leisure-acquisition.html