Sports Direct share price: what’s the outlook after Game Digital bid?
Following his failed takeover attempt of Debenhams, Mike Ashley has set his sights on acquiring the British video game company to expand his high street presence.
The deal announcement was made shortly after Mike Ashley upped its stake in GAME Digital to 38.5%, with the takeover bid valuing the business at 30p a share under a cash bid, representing a 27% premium.
Sports Direct warns of job cuts if deal approved
If the deal goes ahead, Sports Direct has warned that it could lead to job cuts at GAME Digital as some high street stores may close or be merged.
A similar process occurred following the acquisition of other ailing high street retailers, including House of Fraser and Evans Cycles which Ashley acquired for £90 million and £8 million respectively.
Following the acquisition of Evan Cycles, Ashley made it clear that ‘in order to save the business’ half of its 62 stores, which employ 1,300 people, must be closed.
The number of jobs lost would likely be higher without Sports Direct acquiring both businesses, with House of Fraser deal expected to save around 6,000 jobs as Ashley plans to turn the department store into the ‘Harrods of the High Street’.
GAME unable ‘to weather’ market pressures alone
Sports Direct said that GAME lacked the strength to ‘weather the pressures' it is facing as a standalone business.
"Sports Direct believes that the offer, in providing GAME with the wider benefit of Sports Direct's operating and other experience and increased support, will secure Game's future and allow it to navigate these pressures," the company said.
The video game retailer has struggled to keep pace with its online-only rivals, with sales of hardware and gaming consoles in decline.
According to its half-year results, revenues fell 4.7% to £492.9 million. However, intensive cost-cutting measures and increased sales margins helped the company’s pre-tax profits rise more than 20% to £14.8 million.
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
See an opportunity to trade?
Go long or short on more than 16,000 markets with IG.
Trade CFDs on our award-winning platform, with low spreads on indices, shares, commodities and more.
Live prices on most popular markets