Outlook: JJB Sports

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The Independent Online
WHEN A RIGHTS issue flops, it is usually something that both company and advisers would like quietly to forget. Not in the case of JJB Sports, however. The City was positively glorying in the apparent failure of this pounds 105m cash call yesterday. The reason? The flop appears to vindicate the traditional rights method at a time when it is under investigation by the Monopolies and Mergers Commission for being anti-competitive.

American investment banks have been complaining long and hard that the British underwriting system for rights issues and flotations amounts to a cartel, from which they are often excluded. Furthermore, they claim, it means British companies pay too much for their new capital. Well here's a case, the sponsors, Warburg Dillon Read are able to say, where the company ends up on top. Thanks to the underwriting cartel, JJB Sports gets its pounds 105m at the previously agreed price, despite the fall in the shares which has occurred since.

That fall is no reflection on the quality of the company or the acquisition the new money is earmarked for - Sports Division. Rather it is simply a reflection of the setback in the market. That's precisely what sub-underwriters get paid their commission to protect against. All of which makes the adjudication faced by the MMC more complicated still. You won't find David Whelan, chairman of JJB Sports, complaining that he's been ripped off, or in this case many American investment bankers protesting about how they missed out on the sub-underwriting.