Sports Direct International (SDI), the British sports wholesale and retail group, has said that it would not issue any firm offer for Blacks Leisure Group, its rival in the outdoor market, due to uncertainty about the willingness of key suppliers to continue to deliver to Blacks under SDI’s ownership. The withdrawal was welcomed by Blacks, which wants to go ahead with alternative fund-raising to finance its turnaround.
SDI, which already has a stake of about 28.5 percent in Blacks, issued a non-binding offer for Blacks at a price of 62 pence per share last month, which placed the company’s market value at about £26.4 million (€29.9m-$40.6m). This was flatly rejected by Blacks’ board of directors, which deemed the proposed deal wholly inadequate. The Takeover Panel, which supervises such negotiations and transactions in the U.K., then gave SDI until 5 p.m. on April 1 to state whether it would issue a formal offer for Blacks.
However, SDI was unsettled in the last days by British newspaper reports that some prominent suppliers would quit selling to Blacks if it fell into SDI’s hands. The retailer, controlled by Mike Ashley, is known for its aggressive pricing strategy and discount-oriented displays that are not conducive to brand-building at the more technical end of the market.
SDI sent a letter to Blacks on March 26, indicating that it was considering a “material increase” in its offer, but at the same time alleging that the outdoor retailer’s management had selectively disclosed information about suppliers who were reluctant to continue delivering to Blacks under SDI’s ownership, in breach of the Takeover Code. SDI urged Blacks to provide any details it might have on potential issues with suppliers by 3 p.m. the same day, and threatened to refer the matter to the Takeover Panel if Blacks failed to comply. SDI confirmed that it had indeed done so, since the deadline lapsed without information from Blacks. In response, Blacks rejected the allegations of selective disclosure and itself referred the matter to the Takeover Panel.
The day before the deadline set by the Takeover Panel for a firm offer, SDI said that it could not finalize its views on the value of a potential offer without further information about the suppliers. Under British takeover rules, SDI will not be allowed to make another bid for six months, unless another investor issues an offer or its bid is recommended by Blacks’ board. Blacks shares, which had surged by 31 percent on news of a potential SDI bid, slumped by 14 percent to 58 pence by the end of trading that day.
In fact, it appears unlikely that the issue with suppliers was the only motive for SDI to walk away from an offer, since few suppliers, if any, would probably intend to quit delivering to Blacks in the case of a takeover. None of the British brand executives contacted on the matter in a round of calls thought that they could afford to pull out of Blacks. Some of them pointed out that they were already dealing with SDI as the owner of Field & Trek, an outdoor retailer taken over by SDI in 2007. Although it has some stand-alone stores, Field & Trek has many more outlets as outdoor units within Sports Direct stores. Furthermore, several suppliers said that Blacks had angered them by tightening terms in the last years and that SDI could not be much worse.
The North Face was the only company mentioned in newspaper reports as one of the suppliers that might sever its relationship with Blacks in case of a takeover. The company’s U.K. managers declined to comment.
Separately, SDI stated that it reserved its rights with regards to the approval of any fund-raising. Its shareholding in Blacks enabled it to thwart an earlier attempt by Blacks to issue new shares. Blacks said that it was considering other options to raise funds for its turnaround plan, requiring only a straight majority of the shareholders’ votes.
