Sports Direct International, which is already the largest sporting goods retailer in the U.K., is making a bid to possibly become also the biggest one in the Republic of Ireland through the takeover of Elverys, which is believed to be the second-largest player in the market after Lifestyle Sports, in spite of the financial difficulties of its parent company, the Staunton Group. The planned takeover could also help Sports Direct in its fight against Adidas over its premium jerseys.
The takeover would be made through Heatons, an Irish department store chain in which Sports Direct owns a 50 percent stake. A Feb. 7 statement from Dave Forsey, chief executive of the U.K.'s Numero Uno, indicated that his company wanted more than just being Numero Uno in Ireland. He stressed that Elverys “would be an excellent strategic fit” for Sports Direct because it would give it “essential access to the important replica market” in Ireland.
As previously reported, Adidas has decided to cut off Sports Direct from its highly demanded line of replica jerseys for the English Chelsea team from the second half of this year because of its aggressive pricing policies, but Forsey said that Adidas had only “threatened” to do so. According to Forsey, Adidas has also restricted the supply of its Munster rugby jerseys to Heatons. He criticized Adidas' segmentation policy, stating that it has the effect of raising retail prices for all consumers.
Heatons sells rugby jerseys and other sports products through the Sportsworld sections in 26 of its 53 department stores in Ireland and online. Sponsored by Adidas, Munster Rugby is one of the major teams belonging to the Irish Rugby Union.
Heatons is also being restricted from selling the replica rugby jerseys of another regional Irish team, Leinster, which is sponsored by Canterbury. The latter is a property of Pentland Group, the major shareholder in JD Sports Fashion, which bought the Irish Champion Sports chain a few years ago.
Adidas applies no restrictions on its sales to Elverys, which is a member of Intersport U.K. and positioned in a higher segment of the market. Elverys runs 55 stores in Ireland. Its financial status was still unclear at the time of going to press, but well-informed sources indicate that, while the chain is profitable, its parent company, the Staunton Group, may be declared insolvent as part of a pre-packaged receivership intended to scale down its debt prior to its sale to new shareholders.
Elverys' management, led by Patrick Rowland, has reportedly made an offer to take over the chain for €10 million with the support of an Irish financial group, Capnua. The reports say that Mike Ashley, Sports Direct's major shareholder, flew to Dublin to stop the deal and back a rival bid by Heatons, which has offered to pay €12.5 million for Elverys. He has obtained the appointment by the local High Court of a “temporary examiner,” Simon Coyle of Mazars, who will open up Elverys for his and other investment proposals.
Apparently, John and James Staunton, who own Elverys through Staunton Sports, have been trying to find ways to settle their debts with the company's largest creditor, Ireland's National Asset Management Agency (NAMA), in the wake of the recent financial crisis.
The financial crisis has also affected the Irish sporting goods market. According to our estimates, it fell by more than 14 percent in 2012 to about €410 million, affecting mainly independent retailers. Elverys saw its sales decline by an estimated 4.3 percent to around €70 million, giving it a market share of 17 percent. Lifestyle Sports, which is said to be interested in Elverys as well, had an estimated market share of 24 percent. We could not confirm all these figures, but we assume that Lifestyle Sports, which is owned by the Stafford Group, may lose its leadership if Sports Direct and Heatons take over Elverys.
An acquisition of Elverys by Sports Direct would be a setback for Intersport U.K., since the buying group only has four other members in the Republic of Ireland, and more in Northern Ireland. The plan for the management buyout apparently calls for the Irish retailer's partnership with Intersport U.K. to be continued or even amplified. The fact that Intersport U.K. guarantees payments to Elverys' suppliers constitutes important support for the continuity of the Irish retailer's business, which also benefits from the buying group's favorable trading terms.
Sports Direct, which is a buying member and shareholder of Sport 2000 International, has been hampered sofar from expanding its presence in the Republic of Ireland organically by setting up standalone Sports Direct stores because of a non-competition clause in its contract with Heatons. Sports Direct has reportedly asked Ireland's High Court to review the application of the clause. A hearing on the matter is expected for next month.
