JD in shock takeover talks with rival JJB

Shares in JJB leapt 45 per cent at one stage after it said in a stock exchange statement that it was in "highly preliminary" talks about a possible offer from JD Sports for the struggling company.

The group's shares later closed up 17 per cent at 5.4p, having lost nearly 80 per cent of their value over the past 12 months amid tough trading and financial worries.

Shares in JD, which trades as JD Sports, Size, Bank, Scotts and France-based Chausport, from over 500 stores, closed down 3.5p at 844p.

JJB, in which Microsoft co-founder Bill Gates, America's richest man, has a 5.5 per cent stake, was driven to the brink during the recession, but survived partly due to the sale of its fitness clubs to company founder Dave Whelan.

It also agreed a debt restructuring with creditors, new banking facilities and a 31.5 million rights issue just before Christmas, with Gates participating in the equity fundraising.

JJB, which has nearly 250 stores, said in a trading update yesterday that sales at stores open over a year slumped 11 per cent in the five weeks to 23 January.

By contrast, JD announced last month that its like-for-like sales rose 2.5 per cent in the five weeks to 1 January.

City analysts were sceptical about the merits of the takeover, however. Singer Capital Markets analyst Mark Photiades called it potentially risky, given JJB's net debt of about 25m, its trading losses and the capital needed for store refits following any takeover.

Photiades said: "These, together with rationalisation and exceptional costs, perhaps of the order of 10m to 20m, could mean that the entire exercise could cost 50m-100m prior to any equity value."

Freddie George, an analyst at Seymour Pierce, highlighted little overlap in stores, with JD focused mainly on the high street and JJB largely an out-of-town operator. In addition, there is little product overlap, with JD more a youth fashion offering, while JJB focuses on a relatively mainstream sports kit, clothing and trainers business more akin to Mike Ashley's Sports Direct.

Analysts said a deal might trigger a regulatory probe, given Sports Direct's 11.9 per cent stake in JD. But they said a takeover would bring cost synergies and would be welcomed by big sports suppliers such as Adidas and Nike, who are keen on a strong second player to compete with Sports Direct.