JD Sports and Footasylum have been fined almost £5m after breaching the rules around a merger blocked by the Competition and Markets Authority (CMA).
The CMA said during two meetings, which took place on July 5, 2021, and August 4, 2021, JD Sports CEO Peter Cowgill and Footasylum CEO Barry Bown "exchanged commercially sensitive information and then failed to alert or promptly alert the CMA".
The companies have been fined nearly £4.7m for the collective breaches.
READ MORE: JD Sports hits back at rules break claims after covert filming of Footasylum meeting
For failing to have safeguards in place, JD Sports must pay £2.5m and Footasylum £200,000.
For sharing commercially sensitive information, and then failing to alert the CMA, JD Sports will be fined £1.8m and Footasylum £180,000.
The watchdog added that during the 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 two being revealed
- Footasylum’s contract negotiations with its transport and delivery provider
- Contract negotiations for the renewal of Footasylum’s head office space
The CMA said it is "standard practice" for to issue an interim order during an in-depth phase two merger investigation.
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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.
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.
The order required that JD Sports and Footasylum put in place robust measures to prevent such breaches and ensure compliance with the order.
However, the CMA said it had found that both companies had "severely deficient safeguards in place – so much so that they created an environment where information exchanges were almost inevitable".
It added: "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."
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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."
The CMA said that once it 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.
A CMA statement added: "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.
In a statement issued to the London Stock Exchange, JD Sports said: "JD has been subject to hold separate measures in relation to Footasylum since May 2019 and balancing the obligations of separation and business stability over such a long period, which has also coincided with the Covid-19 pandemic, has been complex and not without challenge.
"At no point has there been any intention to breach the rules although JD does accept that, inadvertently, it was in receipt of limited commercially sensitive information and that this was not reported to the CMA immediately.
"However, JD believes that a number of the further conclusions which the CMA have drawn are either incorrect or have been presented in a misleading manner through the use of inflammatory language.
"In particular, JD notes that the CMA are suggesting, for the first time, that phone records have been deleted and, whilst JD accepts that some phone records were not available, it absolutely refutes any allegation that this was due to records being deliberately deleted.
"In this regard, JD can also confirm that it voluntarily submitted all of its relevant devices to a third party for expert forensic analysis.
"JD would also point out the following:
- JD has always acted honestly and in good faith in its efforts to comply with the Order and in responding to enquiries from the CMA, some of which related to events which took place eight months prior
- JD has had market standard guidance in place which has been continually reviewed and updated
- There was no prohibition on the CEOs meeting and, indeed, JD was actively required to retain the employment of Footasylum's key employees during the period of the Order
- There was no legal requirement in the Order for JD to either notify the CMA that a meeting had taken place or take notes of these meetings
"Ultimately, JD does not believe that the description of events or the penalty that has been levied is a fair reflection of the Group's efforts to ensure compliance with the Order.
"JD will now review the detail of the CMA's decision although the Group has already taken swift action to implement additional measures to strengthen its processes in this area which now go well beyond what is legally required by the CMA.
"Separately, JD will continue to work constructively with the CMA on the process to divest Footasylum in line with the CMA's decision in November 2021.