Sports Direct International, the big British sporting goods retailer and owner of a wide range of sports and fashion brands, is to proceed with a put option to acquire 23.0 million shares of Tesco. This represents 0.28 percent of issued share capital in the food chain. The investment is limited to a volume of £43 million (€55.1 million). SDI said that the move “reflects Sports Direct’s growing relationship with Tesco and belief in Tesco’s long-term future“.
U.K.’s large-scale retailer in trouble
But there seems to be more to it than just the growing relationship between the two companies. According to latest figures, Tesco is experiencing difficulties and SDI may be taking advantage of the huge food chain’s plummeting share price. NZZ, the Swiss newspaper, reported that Tesco’s profits published last week, were 25 percent higher than its actual income. As a result of this misinformation, a couple of Tesco’s top managers were suspended and the share price fell by 12 percent.
According to the newspaper, Tesco’s sales dropped by 4.5 percent over the last three months; the market share decreased by 1.4 percentage points to 28.8 percent. It is widely considered that the chain has not invested enough in its outlets while other retailers are moving forward fast. Current market research suggests that the market share of discount chains like Aldi and Lidl will improve from 6.2 percent now to 10.5 percent by 2019. This development leaves, it would seem, Tesco in the uncomfortable middle position of being neither price leader, nor premium retailer. SDI’s investment might just have come at the right time to take advantage of Tesco’s low share price and to ensure that the large-scale retailer purchases sufficiently from SDI’s offer of sports brands.