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JJB hit with FSA fine
JJB Sports fined £455,000 for misleading the market on value of OSC and Qube acquisitions
The Financial Services Authority (FSA) has fined JJB Sports £455,000 for misleading the stock market with information about the cost of two acquisitions it made over three years ago.
On December 18, 2007, the FSA said JJB Sports announced the purchase of Original Shoe Company (OSC) for £5m in cash, but failed to disclose the purchase of in-store stock, which totalled just over £10m.
And on May 22, 2008 JJB Sports announced it had purchased Qubefootwear Ltd (Qube) for £1 in cash but failed to disclose that, as part of the acquisition, it had agreed to settle Qube’s overdraft prior to completion. The cost to JJB Sports of settling the overdraft was £6.47m, the FSA said.
An FSA statement reads: “In both cases the cost of the acquisition was inside information and should therefore have been disclosed to the market as soon as possible.
“At the relevant time the cash positions of listed companies were the subject of increasing investor focus and JJB Sports’ failure to disclose gave a false impression of the costs of OSC and Qube and of the impact of those acquisitions on the true nature and costs of JJB Sports’ strategy.”
The FSA added that JJB Sports published its 2008 interim results on September 26, 2008, which, for the first time, disclosed the true costs of the OSC and Qube acquisitions.
By this time, it had been necessary for JJB Sports to arrange a short-term bridging facility to shore up its financial position, according to the FSA. The 2008 interim results also noted uncertainties about JJB Sports’ ability to continue as a going concern. On the day the results were published, JJB Sports’ share price fell by 49.5 per cent from 104p to 52p.
JJB Sports agreed to settle the investigation an early stage and received a 30 per cent reduction in its penalty as a result. Were it not for this discount, the FSA would have imposed a financial penalty of £650,000.
FSA noted that the entire executive board and nearly all of JJB Sports’ non-executive directors have changed since the acquisitions, and factored this into its decision making process.
Alexander Justham, FSA director of markets, said: "JJB Sports’ failure to disclose information about the two acquisitions denied investors the ability to fully understand its financial position and make informed investment decisions. The repeated failure to disclose this information showed a lack of regard for the market, the disclosure rules and investors.
“The action we have taken shows it is unacceptable to tell only part of the story whilst leaving material facts unannounced in the background."
