JJB Sports, the UK sportswear and equipment retailer, has been fined £455,000 ($727,000) by the Financial Services Authority (FSA) for failing to disclose the true cost of two takeovers.
The lack of disclosure resulted in a false market in JJB’s shares for more than nine months, says the FSA.
In December 2007 JJB bought Original Shoe Company for £5 mn but failed to reveal that it had also agreed to buy the acquired company’s in-house stock, which was worth just over £10 mn.
Then in May 2008 JJB announced it had acquired the loss-making retail chain Qube Footwear for £1. On this occasion, JJB Sports did not inform the market that the deal included paying off Qube Footwear’s £6.5 mn bank overdraft.
JJB had the opportunity on a number of occasions to report the total cost of the acquisitions but failed to take them. The truth only came out in September when JJB’s auditors insisted the details were included in the company’s interim results.
Following the publication of the interim results – which also noted uncertainty over JJB’s ability to continue as a going concern – the retailer’s share price fell by half.
‘JJB’s failure to disclose information about the two acquisitions denied investors the ability to fully understand its financial position and make informed investment decisions,’ comments Alexander Justham, the FSA’s director of markets, in a statement.
‘The repeated failure to disclose this information showed a lack of regard for the market, the disclosure rules and investors.’
While deciding the fine, the FSA took into consideration the fact that JJB’s entire board and most of its non-executive directors have left the company since the disclosure breaches.
The regulator also reduced the fine by 30 percent as JJB agreed to settle early. Without this discount the fine would have been £650,000.
JJB’s corporate broker – which wasn’t named in the enforcement action but has been reported in the media as being Panmure Gordon – was exonerated by the FSA as JJB didn’t inform it about the stock purchase or the overdraft.
In the UK, corporate brokers have responsibility for ensuring their clients comply with disclosure rules.
In the last three years, the FSA has stepped up its campaign against issuers that breach UK listing rules. During this time it has also taken action against Photo-Me International, Wolfson Microelectronics and Woolworths Group.
JJB has released a statement acknowledging the fine, in which it welcomes the ‘finality brought by the conclusion of this investigation’.
