US giant throws JJB £20m lifeline and dispels administration threat

The hefty capital injection, with an extra £10m coming from existing big investors, came as sportswear retailer JJB disclosed it was still deep in the red in its latest trading year to 29 January. Pre-tax losses fell to £101m from £181.4m after major restructuring.

Dick’s Sporting Goods, which has 561 stores in the US, said it believed the deal would be a “stepping stone” in expanding internationally from its heartland.

Edward W Stack, the Pittsburgh-based company’s chairman and chief executive, said: “This is an exciting strategic investment that provides us with a valuable introduction into the workings of the UK sporting goods market from an established company that shares our commitment to serving the needs of core athletes.”

Keith Jones, JJB chief executive, hailed the new investment and strategic alliance with Dick’s as providing “a real opportunity to accelerate JJB’s turnaround”. On the stock market, JJB shares jumped 10 per cent before closing up 4.6 per cent or 0.75p at 17p.

The US group is to buy £18.75m in junior secured convertible notes and £1.25m in ordinary JJB shares, subject to the approval of the UK company’s shareholders. Dick’s also has the option to buy an additional £20m in junior secured convertible notes linked to a possible follow-on financing, set to take place early in 2013. Upon full conversion of these notes, the Americans would emerge as the controlling shareholder of JJB, with 61 per cent. Separately, JJB’s main four current shareholders, the Bill and Melinda Gates Foundation and investment houses Harris Associates, Crystal Amber and IAML, are to plough an extra £10m in, taking the total initial rescue package to £30m.

The four big investors own an aggregate 65.4 per cent of JJB, but that will be sharply diluted if the Americans take majority control.

In what is a complex, multi-stranded financing deal, one of the company’s main suppliers, Adidas, has also agreed to provide security for a two-stage loan of up to £15m to fund store refits. In addition, Wigan-based JJB said Bank of Scotland had agreed to extend existing loan facilities to May 2015.

David McCorquodale, corporate finance partner at KPMG in Edinburgh, and lead adviser for JJB on the transaction, said: “This is a vitally important deal for the company. There would be a big risk of JJB going into administration without it.

“We were asked to find a strategic investor for the group in January. They needed more capital to fulfil their ambition to become a multi-channel sports retailer. In addition, they have got important support from one of their biggest suppliers in Adidas.”

McCorquodale said it was also a good strategic bet for Dick’s, which has no presence outside of the US, where it is the largest publicly‑quoted sports retailer.

“If it does not work out they have lost £20m but at least they have had a good look at the UK sports retail market,” he said. “If it does work it could prove to be a beach-head into Europe for them.”

JJB revealed its latest annual sales fell 21.7 per cent to £284.2m from £363m, and that like-for-like sales in the first nine weeks of the new trading year to 1 April were off 5.7 per cent.

The group said £20m of the new funding would go to converting 60 of its key stores in 2012 and 2013 into a new format that during trials posted much-improved sales.

On Wednesday, a former chief executive of JJB, Scots-born Chris Ronnie, was charged with offences relating to an alleged £1m fraud.