After much ado last week, JJB Sports is going ahead with a plan to issue shares to raise £94 million (€101.7m-$151.9m) net of expenses – more than its market value. The beleaguered British sports retailer, which narrowly avoided bankruptcy earlier this year, badly needs the cash after deepening losses in the first half of its financial year.
JJB said it wants to issue 400 million shares at a price of 25 pence, which represented a discount of nearly 24 percent on last Friday’s close. The retailer said it had received interest covering more than three times the amount of the offer.
The prospectus was approved earlier this week and JJB’s shareholders will be asked to vote on the share issue at a general meeting on Oct. 29. The retailer pulled through earlier this year with a CVA agreement, but suffered yet another loss of £42.9 million (€46.4m-$69.3m) for the first half of the year, as suppliers hesitated to deliver products to JJB, leaving its shelves half-empty. It initially planned to raise only £60 million.
JJB stated that the issue would mark a fresh beginning, giving it more flexibility and allowing it to rebuild its depleted stock. The retailer intends to press ahead with its “Serious About Sport” strategy, placing more emphasis on equipment and less on sportswear, particularly replica shirts. Provided it raises at least £25 million (€27.0m-$40.4m) from the issue, JJB should also be allowed to extend the payback date on the other half of its £50 million loan from Bank of Scotland by two years, to September 2012.
The share issue was due to be initiated last Friday, but it was suddenly delayed because of nasty rumors that started spreading about the personal finances of JJB’s chairman, Sir David Jones – which were quickly investigated and dismissed as entirely unfounded. JJB’s board said it had sent the details of its investigation to the Financial Services Authority.
It appears that the hoax was intended to derail the share issue and to wreck the reputation of Jones. The former head of Next, he was knighted earlier this year and is highly regarded in London. However, Jones came under fire this summer when it turned out that he had omitted to tell JJB’s board about a personal, interest-free loan of £1.5 million (€1.6m-$2.4m) he had taken from Mike Ashley, majority shareholder of Sports Direct, JJB’s leading rival – and Ashley disputes Jones’ claim that the loan was arranged before Jones joined JJB’s board. The loan was quickly repaid. Neither JJB nor Jones disclosed the source of the reimbursement, but JJB’s board was informed and declared itself satisfied.
In the latest imbroglio around JJB, one week ago, just when the share issue was going to be launched, news desks at two British newspapers reportedly received forged documents alleging that Jones had received payments in a Swiss bank account around the sale of JJB’s health clubs to David Whelan, former shareholder and chief executive of JJB. The money was purportedly paid by Jayne Sharpe, Whelan’s daughter. The documents were meant to imply that Jones had received a personal kickback on the sale of the health clubs.
Furthermore, investors in JJB received calls from unnamed parties, warning them that damaging revelations about Jones were due to be published over the weekend. The retailer’s largest shareholders include Harris Associates, a Chicago-based fund manager; Crystal Amber, an activist investment fund; and JD Sports Fashion, another British sports retailer. The Bill and Melinda Gates Foundation also acquired a package of JJB shares last July. The leading shareholders all backed the share issue. But once the allegations about Jones began to hit the market, at least two heavyweight investors reportedly told JJB that they would not take part until the rumors were cleared up.
John Clare, JJB’s senior independent director, immediately called an emergency board meeting and asked Jones to hand over his bank statements. However, these documents showed no sign of the supposed payments by Sharpe. Separately, Whelan denied any wrongdoing.
JJB shares increased this week due to the apparent success of the proposed share issue. Investors also welcomed reports that Steve Johnson, former chief executive of Woolworths, has been short-listed to become chief executive at JJB. This position has been vacant since Jones sacked Chris Ronnie earlier this year, around allegations of improper financial dealings. In fact, the prospectus for the share issue provides details on the width of the investigations that are ongoing in this respect, involving five different institutions.
