Dick's Sporting Goods, the world's third-largest sporting goods retailer after Oxylane and Foot Locker, has agreed to invest at least £20 million (€24.1m-$31.8m) in JJB Sports, in an investment and financial package that could see Dick's end up with a majority stake in the beleaguered British sports retailer. If approved by JJB shareholders at their meeting on April 26, the deal would mark Dick's first international foray.

The proposed investment by the U.S. retailer is part of a wider refinancing package worth £30 million (€36.2m-$47.6m), which should enable JJB to speed up the upgrading of its stores with a format that is yielding an improved performance. The retailer warned that if shareholders failed to support the plan, it would be in default of its current loan arrangements and would probably have to start a sale.

If the deal goes ahead, Dick's will invest an initial £20 million in new JJB shares and convertible loan notes, with a right to invest another £20 million in convertible loan notes, subject to various conditions. If all these notes are converted, then Dick's would end up with a stake of about 61 percent in JJB's then fully diluted share capital.

Four other investors pitched in the remaining £10 million(€12.1m-$15.9m) for the financial package. They are the largest shareholders of the retail group: IAML, Harris Associates, Crystal Amber and the Bill & Melinda Gates Foundation Trust.

Furthermore, the Adidas Group has agreed to arrange or provide security for a two-stage loan of up to £15 million (€18.1m-$23.8m) for JJB to go ahead with its turnaround plan, and the Bank of Scotland will extend its existing facility arrangements until May 2015. The first tranche of the loan arranged by Adidas, amounting to £8.4 million (€10.1m-$13.3m), will be made available in the first year, effectively increasing the amount of available funds to £38.4 million (€46.3m-$60.9m).

JJB is one of the three leading sports retailers in the U.K., with Sports Direct and JD Sports. While Sports Direct is a price-aggressive retailer and JD Sports focuses on sports fashion, the 180 remaining JJB stores in the U.K. and Ireland are regarded by many suppliers of sports performance products as a vital alternative for their British distribution. JJB has been under severe pressure from its two rivals and the economic climate in the last years, and it already had to raise funds to stave off administration last year.

JJB said that the proposed deal would enable it to benefit from the expertise of Dick's Sporting Goods, a retailer with more than 480 stores with the Dick's format around the U.S. market, as well as 81 Golf Galaxy stores. Dick's reported sales of $5.2 billion for the full year until Jan. 28, up by 7.0 percent, and net income of $263.9 million.

As part of the agreement, Dick's will have the right to appoint one representative non-executive director to JJB's board, for so long as it holds any unconverted convertible loan notes, or two such directors for so long as it holds at least 10 percent of the issued share capital of the company from time to time. The retailer will also have the right to appoint two observers to the board (or one if it already has a non-executive director on the board).

JJB said the cash injection was required because, while the company had made a lot of progress in its turnaround plan, the circumstances in the British retail market had made its implementation more arduous and costly than expected.

However, JJB warned that the £30 million package would not be sufficient to cover its financing requirements in the medium term, and that it would require more funding in the first quarter of 2013. This is where the second batch of Dick's convertible loan notes comes in; to be accompanied with another share offering to raise £5 million (€6.0m-$7.9m); the continued support of the Bank of Scotland; and the second part of the loan arranged by Adidas.

JJB intends to invest over £20 million of the new funds to upgrade 60 of its most prominent stores. The acceleration of the transformations is meant to take better advantage of the European football championships and the London Olympics to be held later this year.

The company said it had already gone a long way in its turnaround plan. It has shuttered 41 out of the 43 stores identified for store closures in the first part of its Company Voluntary Agreement (CVA). It has made large cuts in its cost structure, yielding annualized savings of £4.1 million (€4.9m-$6.5m) from lower distribution and warehousing costs, and £5.1 million(€6.2m-$8.1m) from reduced store wages, among others. And JJB has also invested in its own brand development, with the launch last September of H2O, its own swimwear brand, and the expansion of its Run 365 running footwear and apparel range in October.

Six stores that adopted a new JJB format have seen their sales increase by 13 percent and their cash margin rise by 22 percent in a period of 40 weeks. On the back of these improvements, the retailer has tried out yet another store format at its store in Broughton Park, Chester, which is yielding convincing results: Since it reopened, the store's comparable sales increased by 25.6 percent and its cash margin jumped by 24.5 percent on a comparable basis. The plan that accompanies the investment package calls for 25 stores to be transformed before the end of October this year, and another 35 stores in 2013, along the same lines as in Broughton Park.

This comes as JJB reported a sales decline of 21.7 percent to £284.2 million (€343.0m-$450.8m) for the full financial year until Jan. 29. Sales were reduced by store closures, along with a decline of 13.1 percent in comparable store sales. On the other hand, the retailer's gross margin increased by 1.3 percentage points to 35.7 percent.

It suffered an operating loss of £103.5 million (€124.9m-$164.2m) for the period, which was still better than the operating loss of £181.8 million incurred in the previous financial year. The adjusted operating loss, excluding exceptional operating items of £47.2 million, amounted to £56.2 million (€67.8m-$89.1m), compared with an adjusted operating loss of £73.8 million for the previous financial year.

For the nine weeks since the end of the fiscal year, until the start of April, the retailer saw its comparable store sales drop by a further 5.7 percent, while its comparable cash gross margin contracted by 24.9 percent in monetary terms.

Separately, the Serious Fraud Office (SFO) announced earlier this week that it had pressed charges against Chris Ronnie, the chief executive of JJB between August 2007 and March 2009. He was charged with three Fraud Act offenses in relation to failure to disclose interests in contracts entered into by the company; two money laundering offenses; and two offenses of furnishing false information. David Patrick Ball, an accountant and joint beneficial owner of Fashion & Sport Ltd, a supplier of JJB, was charged with three offenses of furnishing false information. The charges are in connection with an alleged £1 million(€1.2m-$1.6m) fraud relating to contracts entered into by JJB Sports in 2008.