REG - Competition and Mkts - Retailers fined almost £5m for breaching CMA IO

JD Sports FashionAnnouncement

14/02/2022 09:00

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RNS Number : 5598B  Competition and Markets Authority  14 February 2022

Sports retailers fined almost £5m for breaching CMA order

·    Breaches include the sharing of commercially sensitive information
between JD Sports and Footasylum CEOs

·    Failure to have proper safeguards in place made breaches 'almost
inevitable'

·    CEOs of both firms claimed they could not remember what had been
discussed during meetings

JD Sports and Footasylum have been fined almost £5 million after breaching
the rules around a merger blocked by the CMA.

It is standard practice for the Competition and Markets Authority (CMA) to
issue an interim order during an in-depth phase 2 merger investigation. These
orders prevent companies from integrating further and ensure they continue to
compete against one another as they would have before the deal took place. The
CMA imposed this type of order on JD Sports and Footasylum in May 2021
(https://www.gov.uk/cma-cases/jd-sports-fashion-plc-footasylum-plc-merger-inquiry#interim-order)
.

The order prohibited JD Sports and Footasylum from exchanging commercially
sensitive information without prior consent, and required the companies to
immediately alert the CMA of any chance that this information may have been
shared.

Importantly, the order required that JD Sports and Footasylum put in place
robust measures to prevent such breaches and ensure compliance with the order.
Upon review, the CMA found that both companies had severely deficient
safeguards in place - so much so that they created an environment where
information exchanges were almost inevitable.

During 2 meetings, which took place on 5 July 2021 and 4 August 2021, Peter
Cowgill, CEO of JD Sports, and Barry Bown, CEO of Footasylum, exchanged
commercially sensitive information and then failed to alert or promptly alert
the CMA. During these meetings, they discussed:

·    Footasylum's issues with stock allocations from key brands

·    Information about Footasylum's financial performance

·    The planned closure of 6 Footasylum stores, with the locations of at
least 2 being revealed

·    Footasylum's contract negotiations with its transport and delivery
provider

·    Contract negotiations for the renewal of Footasylum's head office
space

The sharing of this information had the potential to affect competition in the
market and lead to anti-competitive behaviour. In addition, the companies'
subsequent failure to report these breaches significantly impacted the CMA's
ability to act swiftly to stop the information from being shared further, and
increased the risk that it could impact future business decisions taken by the
companies.

Kip Meek, Chair of the inquiry group investigating the merger, said:

"There is a black hole when it comes to the meetings held between Footasylum
and JD Sports. Both CEOs cannot recall crucial details about these meetings.
On top of this, neither CEO or JD Sports' General Counsel can provide any
documentation around the meetings - no notes, no agendas, no emails and poor
phone records, some of which were deleted before they could be given to the
CMA.

"Had there been proper safeguards in place, we would have been alerted to
these breaches in good time and would have had the necessary information to
tackle them head on.

"It jeopardised our ability to maintain the benefits of a competitive market
for shoppers and ensure there is a level playing field for other businesses.
This fine should act as a warning - if you break the rules there will be
serious consequences."

Once the CMA was made aware of the meetings, it used its information gathering
powers to try and develop a clearer picture of what had taken place. It
requested details from both companies on the number of meetings that had
occurred between the companies since July 2020; the topics discussed; any
documents involved; and any steps that had been taken to prevent commercially
sensitive information being exchanged.

Despite the firms being legally required to respond to these requests, both
failed to provide the CMA with all the information it asked for by saying
that, at one meeting in December 2020, no documents were exchanged, when this
was in fact not true. This impacted the CMA's ability to conduct its
investigation, for which each company have been fined £20,000.

The companies have been fined nearly £4.7 million for the collective
breaches, which are split as follows: for failing to have safeguards in place,
JD Sports must pay £2.5 million and Footasylum £200,000. For sharing
commercially sensitive information, and then failing to alert the CMA, JD
Sports will be fined £1.8 million and Footasylum £180,000.

  Notes to editors

1.   The purpose of merger control is to regulate the impact of mergers on
competition in markets. While companies cannot complete mergers during an
investigation in most countries, the UK has a voluntary merger regime that
requires IOs for completed mergers at phase 2. Such measures prevent companies
integrating whilst an investigation is taking place and preserve competition
in the market. The CMA has set out further detail on this in its published
guidance Interim measures in merger investigations
(https://eur02.safelinks.protection.outlook.com/?url=https%3A%2F%2Fassets.publishing.service.gov.uk%2Fgovernment%2Fuploads%2Fsystem%2Fuploads%2Fattachment_data%2Ffile%2F813144%2FInterim_Measures_in_Merger_Investigations_June_2019.pdf&data=04%7C01%7CLucy.Knowles%40cma.gov.uk%7C97f4104a020f490568cb08d9e70bc472%7C1948f2d40bc24c5e8c34caac9d736834%7C1%7C0%7C637794859999354359%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000&sdata=k%2FHcj9Bb9khXPMs%2F11y5UBKkpfYSs%2FHfKsalxJxmjug%3D&reserved=0)
.

2.   An interim order (IO) is used in a Phase 2 investigation to prevent
further integration between companies and ensure competition in the market as
if the merger hadn't taken place while the CMA completed its merger review. An
Initial enforcement order (IEO) is commonly put in place at the start of Phase
1 investigation for a similar purpose - to prevent further integration and
make sure the companies involved continue to compete with one another as they
would have before the deal took place.

3.   The parties breached the CMA's interim order 3 times:

-      The parties did not have effective policies and safeguards in
place to avoid instances of information sharing;

-      During 2 meetings, the companies' CEOs shared commercially
sensitive information;

-      Following these meetings, both parties failed to alert the CMA -
in one instance, the parties failed to report the meeting and in the other
they informed them after 15 days and only after the CMA began to probe the
meetings between them;

4.   The first meeting was only brought to the attention of the CMA via a
video recording disclosed to it by a third party. This showed Mr Cowgill and
General Counsel of JD Sports meeting in a car with the Mr Bown. JD Sports and
Footasylum only alerted the CMA to the second meeting 2 weeks after it took
place in a joint email and after prompting by the CMA.

5.   The CMA sent JD Sports and Footasylum 2 Section 109 Notices
(information notices) - the first on 10 August 2021 and the second on 24
September 2021. The first required the firms to detail all the meetings they
had with each other from July 2020 and to provide any documents that had been
discussed or exchanged at those meetings. The second required detailed
accounts from the attendees at the July and August meetings; email, phone and
any other records connected to the meetings and between Peter Cowgill (JD
Sports CEO), Siobhan Mawdlsey (JD Sports' general counsel) and Barry Bown
(Footasylum CEO); as well as records from other senior employees. It also
asked for all the companies' compliance policies and documents and
communications around compliance since the interim order had been in force.

6.   Whilst JD Sports and Footasylum had safeguards in place, these were
severely deficient - so much so that they created the environment wherein the
sharing of commercially sensitive information was highly likely, if not
inevitable.

7.   The maximum penalty the CMA can impose on a company for not complying
with its information notices is £30,000.

 

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