Sports Direct lifts Umbro stake to 9 per cent

By Karen Attwood
Published: 15 September 2007

Mike Ashley's Sports Direct has built up a 9 per cent stake in Umbro, triggering speculation that the football kit maker could be heading for a takeover bid.

Umbro told the Stock Exchange yesterday that Sports Direct, which owns Lillywhites and the Sports World chain, holds 13.2 million shares in the company, after it had built its stake up to 5 per cent earlier in the week.

Sports Direct said the move was a "strategic investment". Analysts believe that it is unlikely that Mr Ashley has an eye on the group, but is rather hoping to cash in when shares rise, possibly on the back of a takeover bid from another party.

Mr Ashley has taken advantage of a sharp fall in Umbro's share price to buy in. Its shares plunged 18 per cent last week after the company issued a profits warning, blaming poor sales of the replica England kit as the England football team failed to inspire fans.

Sports Direct's stake-building has raised eyebrows as Umbro is a major supplier to the retailer and has a deal to install Umbro Football Areas in 180 Sports Direct stores by the end of the year.

Sports Direct has also made investments in the German sports giant Adidas and the Finnish company Amer Sports, which owns the ski brands Salomon and Atomic. It also owns 29.4 per cent of Blacks Leisure and a stake in John David, the owner of JD Sports.

This week Sports Direct issued a trading update showing that sales had improved since July after a poor summer due to the weather. But analysts were unhappy with the lack of detail as the company failed to give like-for-like figures.

Philip Dorgan, an analyst at Panmure Gordon, said that he was cutting the current year's profit forecast by 44 per cent to £69m, and the following year by 55 per cent to £61m. He also downgraded his share target from 120p to 80p. The shares have plummeted since Sports Direct listed in February, ending down 6p yesterday at 126.75p.