The UK Competition and Markets Authority (CMA) recently announced it had imposed £4.7m worth of fines on JD Sports and Footasylum following the blocked merger between the parties.
As part of its Phase 2 investigation into the transaction, the CMA imposed its usual initial enforcement order (IEO) on JD Sports and Footasylum. IEOs prevent companies from integrating whilst the CMA investigates, in order to preserve the pre-merger market position. This means the parties must therefore continue to act as competitors until the CMA review is complete and the IEO is lifted.
Terms of the IEO
The IEO prohibited the sharing of commercially sensitive information between the parties without prior consent and required the companies to immediately alert the CMA of any chance that this information may have been shared. As is typical in IEOs imposed by the CMA, the terms of the JD Sports/Footasylum IEO required the parties to take steps to ensure the terms of the IEO are complied with, and periodically report compliance (including any breaches) to the CMA.
Breaches of the IEO
The fines were imposed for:
- a failure of safeguards in place to comply with the terms of the IEO - £2.5m fine on JD Sports and £200,000 fine on Footasylum; and
- sharing of commercially sensitive information (such as information about Footasylum’s stock allocation, its financial performance, plans for store closures and contractual negotiations) – £1.8m fine on JD Sports and £180,000 fine on Footasylum
The CMA found that the IEO was breached 3 times in total. According to the CMA, on two occasions the CEOs of the parties met and shared commercially sensitive information. The CMA noted that it found out about the first meeting via a third party sending a video recording.
Following the CMA becoming aware of the meetings, the CMA requested information from the parties including email and phone records. The CMA also requested companies’ compliance policies and documents and communications around compliance since the IEO had been in force, and found 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”.