Antitrust Alert: UK Office of Fair Trading referral of Sports Direct acquisitions to Competition Commission highlights strict enforcement policy

On 7 August, 2009, the UK Office of Fair Trading (OFT) referred Sports Direct's acquisition of 31 JJB Sports stores to the Competition Commission (CC) for an in-depth merger review.  This decision raises a number of notable issues and showcases the policies and tools available to authorities to closely regulate mergers and acquisitions in the UK. 

First, grounded on a series of acquisitions taken over a year’s time, the jurisdictional basis was unusual, although not unprecedented.  The OFT has the discretion to treat successive events occurring over a two year period as having taken place simultaneously on the date on which the latest of those events happened.  In this case, the OFT treated the individual store acquisitions, which took place between November 2007 and December 2008, as having occurred simultaneously on 1 December 2008.  The OFT has only very rarely used its discretion to take jurisdiction over a series of transactions occurring over a two year period, most recently in the HMV/Zavvi case.  In light of this, Sports Direct is likely to count itself unfortunate that the OFT chose to take jurisdiction in this case.  In order to do so, the OFT relied on the parties accounting for at least a 25% share of supply of sports retailing and sports clothing retail respectively at a national level (although the competition concerns it identified occurred at a local level).  In respect of sports clothing retail, the test was barely met: Sports Direct had a share of 24.9% before the acquisitions and gained an increment of approximately one per cent.  In respect of sports retailing, the test was clearly met (Sports Direct had a share of 31% pre-merger), but again the increment was small, at some 2.5 per cent.  These factors demonstrate the wide discretion granted to the OFT to enable it to assert jurisdiction if it decides to investigate a transaction.

The second notable point is that the OFT became aware of the series of transactions thanks to its "Mergers Intelligence Unit."  This is a sharp reminder that, although the merger control regime is voluntary in the UK, the OFT actively looks out for mergers and will challenge completed mergers on its own initiative.

Thirdly, having identified competition concerns during its review, in May 2009 the OFT accepted undertakings from Sports Direct, in lieu of a reference to the CC, to agree within three months to divest five stores to an “upfront buyer.”  That deadline passed without Sports Direct finding a buyer. and the OFT has refused Sports Direct’s request to extend the deadline, notwithstanding the tough economic climate.

This decision highlights the OFT’s stated policy of strictly enforcing competition rules despite the economic downturn.  Sports Direct is now faced with a potentially costly and time-consuming CC investigation, which could run into 2010, more than two years after Sports Direct first began acquiring the stores that are the subject of this extended merger review.

Read more on the OFT’s announcement at their web site. 

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Jarleth M. Burke

Matt Evans

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