THE FINANCIAL SERVICES AUTHORITY (FSA) has fined JJB Sports (JJB) £455,000 for failing to disclose information to the market about the true cost of two acquisitions.
This led to a false market in JJB shares for over nine months, the City watchdog said, adding that JJB made a number of market announcements in that time which did not correct the position.
On the day when JJB first revealed the true costs if the acquisitions its share price fell by 49.5%
On December 18 2007, JJB announced that it had purchased the retail chain
Original Shoe Company (OSC) for £5m in cash. JJB failed to disclose that, in addition to the cash price, it had to pay for the in-store stock at a cost £10m, according to the FSA.
On May 22 2008, JJB announced that it had purchased another retail chain, Qubefootwear (Qube) for £1 in cash but failed to disclose that, as part of the acquisition, it had agreed to settle Qube’s overdraft prior to completion. The cost to JJB of settling the overdraft was £6.4m.
In both cases the cost of the acquisition was inside information and should therefore have been disclosed to the market as soon as possible, the FSA said.
At the relevant time the cash positions of listed companies were the subject of increasing investor focus and JJB’s failure to disclose gave a false impression of the costs of OSC and Qube and of the impact of those acquisitions on the true nature and costs of JJB’s strategy, the FSA also said.
On September 26 2008, JJB published its 2008 interim results which, for the first time, disclosed the true costs of the OSC and Qube acquisitions.
By this time, it had been necessary for JJB to arrange a short-term bridging facility to shore up its financial position. In addition, the 2008 interim results noted uncertainties about JJB’s ability to continue as a going concern
Alexander Justham, FSA director of markets, said: “JJB’s failure to disclose information about the two acquisitions denied investors the ability to fully understand its financial position and make informed investment decisions.”
“The repeated failure to disclose this information showed a lack of regard for the market, the disclosure rules and investors.”
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