An agreement has been reached to form a combination between the JD, Sprinter and Sport Zone stores in Spain and Portugal, forming an Iberian retailer with sales of about €450 million and 311 stores owned at a small majority by the JD Sports Fashion Group.
The conditional agreement integrates Sport Zone into JD Sprinter Holding (JDSH), a joint venture formed six years ago between JD Sports Fashion and the Spanish owners of Sprinter, a Spanish sports retailer. Under the deal, JD Sports Fashion will own 50 percent plus two shares in the enlarged JDSH. Another 30 percent less one share will be held by Sonae, the conglomerate that fully owns Sport Zone. The remaining 20 percent less one share will go to the Segarra family, the founders of Sprinter.
The conditional agreement comes about six months after the parties announced their intended tie-up, to form the second-largest Iberian retailer after Decathlon, with 204 stores in Spain and 107 in Portugal. JD Sports Fashion said that the tie-up provided potential to accelerate growth and to streamline the organizational structure. The British retailer added that the combination forms a platform to expand into other territories. It pointed out that Sonae operates some Sport Zone franchise operations in territories outside Spain and Portugal, which could provide information relevant to any potential expansion of JDSH. The franchise operations are established in France and India.
Sport Zone runs 94 stores in Portugal and 46 in Spain. These Spanish outlets include 20 stores in the Canary Islands that are owned at 60 percent by the Sonae group, while the conglomerate fully owns the other entities in Spain and Portugal.
The Sport Zone stores jointly reported sales of €226.7 million last year and they generated earnings before interest, tax, depreciation and amortization of €37.2 million, excluding central costs. Sport Zone has gross assets valued at €150.1 million and it reported a loss before tax of €27.7 million, but JD Sports Fashion said these figures would not be directly comparable to the ongoing business, mostly due to group charges and intra-group transactions.
For the fiscal year until January 2017, JDSH reported a profit before tax of £11.8 million (€13.5m-$15.8m) and gross assets of £103.5 million (€118.3m-$138.9m).
JD explained that the transaction would enable JDSH to draw on the expertise of the management teams at Sport Zone and Sprinter, to create an efficient retailer across Iberia. The management teams on both sides are expected to play a key role in strategic and operational management across Iberia.
The stake of 30 percent less one share held by Sonae is a combination of several transactions. Apart from the assets brought into the deal, Sonae will subscribe for new shares in a share capital increase of JDSH, and about 1.14 million treasury shares in JDSH will be transferred to Sonae. But then JD Sports Fashion will buy about 2.78 percent in JDSH from Sonae, for a cash payment of €7.1 million. The deal also includes a contingent consideration of up to €23.5 million to be paid by JDSH to Sonae, in case the value creation is above expectations.
Separately, the deal requires JD Sports Fashion to buy a share package of about 2.35 percent in JDSH from the Segarra family, at an agreed price of €6.0 million. The shares are formally bought from Balaiko Firaja Invest, the holding company for the Segarra family.
When JDSH was formed in 2011, the Segarras equally shared the minority stake of 49.9 percent with the Bernads, another well-known family in the Spanish sports retail business. But it turned out a few weeks ago that the Bernads sold out around the end of last year, which raised JD Sports Fashion's stake in JDSH to 66.7 percent and Balaiko's share to 33.3 percent. The newly-agreed transaction between JD Sports Fashion and the Segarras aligns the share packages in the enlarged JDSH group, allowing the British company to retain a majority stake.
The three-party deal further involves an array of put and call options, to enable potential exits for all parties. These options are subject to independent valuation at the time they are exercised, but their price has been capped at just under 25 percent of JD's gross capital, less any consideration already paid under the transaction. The options relating to the deal with Balaiko also specify a limit of 24.99 percent of JD's gross assets, amounting to £331.6 million (€379.0m-$444.9m).
The deal has to be cleared by the competition authorities and approved by shareholders. For this purpose, JD Sports Fashion has organized a shareholders' meeting on October 5. However, it has already received approval from the Pentland Group, which owns 57.47 percent of JD Sports Fashion's shares. The same applies to the directors, who jointly own 0.91 percent in the British group. JD Sports Fashion said that, due to the timing, the combination should not have a significant impact on its results for the current fiscal year to February 3, 2018.
