With the recession seeing many commercial property chains go into administration, it is hardly surprising that big business owners are taking advantage of their rivals’ difficulties by making offers that boards of directors find hard to refuse.
Most recent in this list is struggling retailers JJB Sports International, who announced a massive drop in shares value earlier this month. As a result, the company realised that the chain of stores could no longer be profitable and so they decided to cut their losses by selling out to a similar retail group.
Now it emerges that billionaire owner of Sports Direct and Newcastle United owner, Mike Ashley, is preparing to purchase the most profitable stores under a “pre pack” administration deal, with the commercial properties being absorbed into the Sports Direct brand. Unfortunately, this means that the less profitable stores in the chain will simply be forced to close down completely, amounting to around 2,000 job losses nationwide.
JJB Sports currently owns 180 stores in the UK, more than half of which will close permanently under the new deal.
It appears that JJB Sports will be unable to avoid administration, but under the pre pack arrangement bosses will be able to announce the administration and immediately sell the brand, rather than enduring the long process of negotiating with buyers and sinking further into debt with each passing day.
This solution would also be better for buyers Sports Direct, as the deal will not necessarily mean the more successful sporting goods chain would have to purchase the loss making stores as part of the deal. Additionally, prolonged administration periods can often cause damage to both of the involved brands, which sometimes proves to be irreparable – a situation which Mr Ashley will be keen to avoid given the turbulent economic situation in Britain at the moment.
Representatives from JJB Sports earlier this week warned shareholders that any stakes they have in the company are likely to be wiped out completely under the rescue deal, meaning a loss of money for investors still on board. This group includes the Bill and Melinda Gates Foundation, who set up the charity under the belief that every life has equal value and therefore fund initiatives aimed at helping people across the world.
Neither Sports Direct nor JJB Sports International have yet released a statement regarding the deal, which is believed to be nearing an agreement. The terms of the agreed upon negotiations are expected to be announced later this week.
While it is assumed that Sports Direct will be successful in their takeover bid, other companies thought to have shown interest in buying out the commercial property chain include Decathlon, a French retailer of sporting goods, and investment firm OpCapita. Jon Moulton, owner of private equity firm Better Capital, is believed to have shown interest, yet failed to submit an offer by the deadline given to all involved parties.
Do you believe the absorption of JJB Sports International by Sports Direct is a good thing, in that less competition of similar brands means that the larger firm is more likely to be successful? Or do you think that less competition on the high street can only lead to rising prices by the larger company, therefore putting consumers off visiting Sports Direct commercial property stores?
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