£100m cash call shock as revived JJB Sports bids to double in size

Published on Friday 9 October 2009 21:05

JJB Sports is planning to tap shareholders for £100 million, less than six months after narrowly avoiding collapse.

The Wigan-based sportswear retailer, which is part of a price-fixing investigation, is preparing a deeply discounted share placement, which could more than double its market capitalisation.

Analysts had expected the company to raise funds, but 100m is far more than predicted. Matthew McEachran, an analyst at Singer Capital Markets, said the figure appeared to be more than JJB needed. "Although there is a need for additional stock over and above a 'normal' level in the run-up to the World Cup, we estimated that an additional 30m would be required to achieve normal stock levels," he said.

JJB, which has an exclusive deal with Rangers to sell the club's merchandise, is believed to have been planning to raise about 60m, but decided to increase the level after encouragement from investors.

New shares are expected to be offered to shareholders for as little as 25p, a discount of 24 per cent to JJB's closing price last night. Panmure Gordon and Numis Securities, JJB's brokers, will underwrite the transaction.

A spokesman declined to comment on the timing of the cash call, although JJB said it would release more information "shortly".

Dozens of companies have gone to the market to raise cash in recent months. Bookmaker Ladbrokes joined the list this week, announcing a 275m rights issue.

Shareholders in JJB are being invited to take part in a turnaround programme under new executive chairman Sir David Jones, who is expected to move the chain to a more premium offering.

JJB has suffered from brutal competition from Sports Direct International, the company headed by Newcastle United owner Mike Ashley, which has a "pile high, sell cheap" approach.

If JJB is successful with its cash call, it will cap a remarkable recovery since the start of the year. Its shares fell to 4p in January.

In April the group narrowly avoided being placed into administration, striking a deal with landlords to compensate them after closing a number of stores.

Last month the group unveiled a 42.9m half-year loss, and admitted that it was struggling to get stock because suppliers feared the company may not be able to pay its bills.

As well as questions over its recovery plan, shareholders will be mindful of an investigation by the Office of Fair Trading and the Serious Fraud Office into alleged price-fixing. Sports Direct is also being investigated.

Last month JJB confirmed that its head office had been raided by OFT officials, but said the investigation had been sparked after it approached the watchdog in January, seeking leniency against prosecution.

Jones said last month that, given its leniency status from the OFT, JJB did not believe it had committed offences for which it would be prosecuted, claiming his company had been a victim.

Its shares fell 5 per cent to 32.75p yesterday.