JJB confirms bid talks and £31.5m fundraising

The beleaguered sports equipment retailer JJB Sports yesterday gave its long-suffering shareholders mixed news by confirming that it had received a takeover approach from its rival JD Sports Fashion while also tapping investors for a £31.5m fundraising.

The 250-store retailer also caused investors and its 6,300 staff more anxiety by revealing that, despite the cash call, JJB could suffer a "funding shortfall as early as the last week of March", if the group's trading cash flow or cash management actions fall below those forecast.

In addition to the £31.5m, JJB would therefore need to raise further funds, but the group said it will not seek to do this "without a broader restructuring of the group's portfolio of stores and cost base". Put simply, JJB looks set to close or sell a significant number of stores, with associated redundancies, among other measures.

JJB – which has been in a fight for survival for about two years – confirmed it is in "initial discussions" with JD concerning a potential offer. This helped to send JJB's shares up by 0.8p, or 17.4 per cent, to 5.4p, giving it a market capitalisation of £35.2m.

JD Sports Fashion, which has a market capitalisation of £424m, is understood to have first approached JJB Sports about a takeover last month. While City sources suggested a merger could pique the interest of the Competition Commission, others played down the level of cross-over of shops.

JJB's stores are primarily located on out-of-town retail parks, while JD's 500 plus stores, including the eponymous JD, as well as the Bank and Scotts fashion chains, are mostly on high streets. However, Mark Photiades, an analyst at Singer Capital Markets, said the competition watchdog may take an interest in the 11.9 per cent stake that rival Sports Direct holds in JD.

Both JJB and JD stressed there was "no certainty that an offer will be made". John Stevenson, an analyst at Peel Hunt, also pointed out that JJB has "massive central costs" of about £40m relating to its head office and warehouse.

JJB yesterday said its plans to raise £31.5m through a placing and open offer were supported by its biggest shareholders, including Harris Associates, Crystal Amber and the Gates Foundation. JJB, which plans to transfer its listing to the Alternative Investment Market in April, said its like-for-like sales tumbled by 11.1 per cent between 20 December and 23 January.