Update: JD Sports Buys Back Calibre Parent Company for £56.5 Million After Putting it in Administration Earlier This Week

Jun 24, 2020
by James Smurthwaite  
photo

After putting it in administration with Deloitte earlier this week, JD Sports has bought back GoOutdoors, the company behind Calibre Bikes, for £56.5 million.

The outdoors brand, which also sells Raleigh and Diamondback bikes, was put into administration yesterday but was reacquired soon after by JD Sports via a subsidiary that was incorporated on June 10, JD Newco 1.

JD Sports initially bought GoOutdoors for £112 million in 2016 and has said the outdoors retailer will now need to be "fundamentally restructured" to become a viable part of the group. This may sound like bad news for the staff but JD Sports has currently taken out a 12-month license on all 67 GoOutdoor stores and says it intends to "preserve as many jobs as possible" among the 2,400 staff.

Peter Cowgill, executive chairman at JD Sports, said: "As a consequence of Covid-19, Go Outdoors was no longer viable as previously structured and would have absorbed capital at an unsustainable rate for the foreseeable future. Having investigated all available options for the business, we firmly believe that this restructuring will provide Go Outdoors with a platform from which it can progress whilst remaining a member of the group. Most importantly, we are pleased that it will protect the maximum number of jobs possible. We look forward to having positive conversations with landlords and agreeing new flexible lease contracts which reflect the widely reported challenges of reduced consumer footfall."

Michael Magnay, joint administrator, said: "Like many high street retailers, Go Outdoors Ltd has been seeking to address a number of underlying business challenges in the current UK retail environment, which have been exacerbated by the impact of Covid-19. This successful sale will provide Go Outdoors with an opportunity to restructure its business to secure its future for the long term. I'm particularly pleased that we have been able to secure the employment of all the Company's workforce, and we'd like to thank all employees and key stakeholders for their support throughout this process."

So Calibre's future seems safe with Go Outdoors for now however we will keep you up to date with any further news that might impact the budget bike brand.

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52 Comments
  • 58 0
 Further proof, if it were needed that the biggest heists are conducted from boardrooms
  • 12 1
 Agreed. As much as I want to see Calibre succeed, this crap should be illegal but it happens every day. Maybe time for new laws... oh yeah the people making laws are shareholders
  • 16 2
 A street kid gets arrested, gonna do some time. He got out three years from now just to commit more crime. A businessman is caught with 24 kilos. He's out on bail and out of jail And that's the way it goes, raah!
  • 6 0
 Exactly. The left and right are busy arguing, the financial elite are pulling stuff like this and lining their own pockets at the expense of taxpayers.
  • 16 2
 @ckcost: you’re confusing liberals for the left. The actual left is very aware of how rich people get away with stuff life this.
  • 6 1
 @Dropthedebt: Athletes rejected, governors corrected
Gangsters, thugs and smugglers are thoroughly respected
The money gets divided
The women get excited
Now I'm broke and it's no joke
It's hard as hell to fight it, don't buy it!
Raah! (Blow!)
Get higher, baby
(Ahhh) Get higher, girl!
(Ahhh) Get higher, baby!
C'mon!
Raah!
  • 4 0
 @dan23dan23: finally... some love for Sugar Hill and Melle Mel tup
  • 6 1
 What is it you guys think happened here?!

The business took on too much debt at some point, based on growth forecasts they clearly never achieved.

The lenders obliviously had to take a big loss. JD Sports already took a big loss too if they bought it at £112m and it’s now worth £56m. Thankfully they have plenty of people queuing up at their shops to buy overpriced tracksuits.

Some businesses are successful and achieve their goals, others aren’t. The bossnut seems a great bike, but it’s a tiny proportion of this company’s product line.
  • 2 0
 We live in a capitalist society. Not saying it's good, just saying no one else has found anything better yet.
  • 1 3
 @kleinblake: Your confusing conservatives for the right. The actual right is very aware of how rich people get away with stuff *like this.
  • 1 0
 @ssteve: yup. People think because there are flaws in the world and in humanity that will inevitably be reflected in whatever system is put in place, that we should scrap it all in favor of some utopian idea. My favorite saying is, "everything is nuanced." I think that applies here.
  • 2 0
 Give a man a gun and he can rob a bank, give a man a bank and he can rob the world.
  • 10 0
 Interesting. What are the financial mechanics of this? Is it just a tax-efficient way to write down a loss in the difference in purchase prices - from £112M to £56M - by selling it to themselves? Who actually bears the effect of that loss - shareholders? What's the benefit to JD of essentially revaluing an asset at half of its previous value?
  • 3 2
 I think the lower asset value will affect the amount of corporation tax they pay, in which case the taxpayer effectively helps them out financially (a bit). Doubt that's the main reason for something like this happening though (I could be wrong).
  • 15 0
 I think it might also have been a way to encourage landlords to give them cheaper rents. "We look forward to having positive conversations with landlords and agreeing new flexible lease contracts." I doubt anybody else would have leased the warehouse-size properties Go Outdoors use on the brink of a potential recession so it would have been a choice between renegotiating or nothing for the landlords.
  • 2 0
 @tremeer023: Maybe. Thinking about it, it might be a capital gains tax strategy. They've crystallised a loss in the sale, which the parent company can use to offset gains in other assets, and pay no tax on them. I think. I don't know whether such rules apply at the scale of tens of millions.
  • 5 0
 Ok, I'm no financial expert... But by putting it into administration, they buying it back as a new company, I assume that means existing contracts on rents are now null and void. So puts them in a strong negotiating position for new contacts with their existing landlords. And maybe also employment contracts and debts?
  • 1 0
 @jamessmurthwaite: I think you're right. Mike Ashley has spoken out in the past about retail rents. It affects the amount of business rates they pay too.
  • 1 0
 @tremeer023: I thought business rates were per square metre of each usage type e.g. Retail, office, storage etc. How would this affect them?
  • 8 0
 The financial mechanics are:

JD Sports (JD) buys GoOutdoors for 112m

They pay this much because of the current sales and forecast sales.

They borrow. Presumably quite a lot. Possibly as part of the purchase. The lenders think the business case is credible too. Let’s suppose they borrow 80m.

Bricks and mortar retail continues to decline (see also JC Penney, BHS, etc, etc).

Then COVID hits and there’s cash flow problems. No one is allowed to go shopping an a business that is on the rocks anyway now can’t pay its debts.

The lenders now effectively own the business, as the interest isn’t being paid and it’s now worth much less than the 80m they loaned.

The lenders look around for a buyer. The best offer comes from JD Sports, they know the business, believe they can turn it around and are the best bidder.

So in this example JD lost 32m (112m - 80m) and the lenders lost 24m (80m - 56m).
  • 2 0
 Ouch
  • 2 0
 Ouch
  • 1 0
 Ouch
  • 1 0
 @Altron5000: Cheers for explaining. And Ouch.
  • 2 0
 @sideshowb: Rates are based on the rental value of the property. If they can negotiate lower rents the rates liability could be reduced too (maybe not immediately).
  • 1 0
 @Altron5000: thank you. Interesting stuff.
  • 4 0
 @Altron5000: buy a company, do not realize value, put it in protection, nullify all contracts, buy it back at a discount, gain massive write downs to minimize tax base for a couple years, regain an asset at a much lower cost, leverage market position to renegotiate said contracts. Very often when this is done the compensation structure of staff changes as well, new old company pays out banked holidays, pensions, etc and offers same employee same job at different compensation and loss of seniority (which equates to less security, lower pension and fewer holidays). Keeps same number of employees, but nowhere do they say pay won’t be affected or hours available to work (rent, goods, salary and debt are the biggest cost of retail). Now start selling product at sale prices to generate cash to make payments, making better margin on goods that many suppliers will never be paid for or certainly not get paid full price.

And Deloitte likely banked 1-3mill in fees to do the paperwork.

It’s a shell game. Perfectly legal, but shady.
  • 2 0
 @pourquois-pas: We have something called TUPE in the UK that would likely protect employees quite a bit in this case. That said, most of their employees will be on minimum wage, there's only so much they can drop salaries by anyway.

To have a tax loss you have to make the loss in the first place, this is 5x more painful than the subseequently avoided tax.

There are some cases like this where there's been malpractice (see BHS / phillip green...). Honestly though, I think in this case it's just a slightly crap company:

- Seems like they're caught in the middle of the market (low end, cheap but not cheapest)
- Underinvested in online
- Poor brand and brand recognition
- Have massive out of town premises with big lease obligations

If this was a really good company, worth a lot more than 56m, someone else would have bought it than JD.
  • 1 0
 @Altron5000: but Calibre's bikes have been featured on Pinkbike!--I guess it's not that difficult to lose 56 million in fifty-something months when you've 67 stores and 2400 employees and then get slapped with a pandemic. Surely you're not saying lenders would have preferred to keep the 24m rather than write it down. Everyone knows that written-down money is a lot more valuable than lost money. The Americans above are probably unwittingly thinking of 529 billion in undisclosed PPP loans and some terrific orange-tinted tax filings.
  • 1 0
 @Altron5000: its affects their balance sheet, but operationally they get the same asset at half the cost and the only hard loss would be debt service payments made to date and fees related to the administration process - the rest is smoke and mirrors between T accounts on paper. The creditors lost, JD is laughing.

Imagine you buy a house. Realize it cost way too much to pay the mortgage and the monthly bills because the rental income isn’t as high as advertised. So you foreclose, the bank takes a loss and your credit is hit. You marry someone, buy the same house in their name at half the price, walk away from all the monthly bills you hadn’t paid while opening new accounts with the same vendors for less fees. Did you lose?
  • 5 0
 Thats like the most generic name for a subsidiary ever.
  • 1 0
 To be fair, it looks like the the company was bought and sold so fast they weren't expectung to have to come up with anew name that quickly.

Or, if the suggestions of nefarious goings on in the comments hold any weight, they are actually that blasé about their dodgy dealings.
  • 2 0
 British high street rents are due a dip, a very big dip, like grand canyon size dip..was a license to print money since the 80's, now the high street is dying, JD (Mike Ashley)telling them to kiss my arse..
  • 2 0
 Yep massively the case...that said at what point does it become more profitable to re-zone as housing. What would save a load of high streets is more niche/local stuff. But things like that are priced out of most high streets.
  • 1 0
 Mike Ashley isn't JD Sports He's Sports Direct
  • 1 0
 Don't forget that JD Sports, Blacks, Go Outdoors and Millets are all part of the Pentland Group which must be looking at the different retail brands within their portfolio. Expect Blacks and Millets to disappear from the high street very soon.
  • 1 0
 There's going to be huge demand for camping gear this summer with very little supply it seems - Decathlon must be licking their lips though
  • 1 0
 makes u wonder, where they got the funds so fast... Good news though.. can see myself riding one of those Calibres in the future
  • 1 0
 The photo of the bike looks like it has a cable running to the shock.. Its that some kind of rear lockout?
  • 1 1
 Yes, on the sentry pro it had a remote lockout (firming up “sn*gger”) for the rear shock.
  • 1 0
 Don't support these corporate dirtbags. Buy a local frame made in your country be mountain bikers
  • 1 0
 Not many of those in the UK, an all of what there is will be super expensive boutique frame builders Not everyone is a dentist
  • 1 0
 @ibishreddin I support this idea, interested what US made frame you ride. There's a few about but not too common
  • 1 0
 @nojzilla: starling cycles, cotic, stanton if i remmebr correctly
  • 1 0
 @ibishreddin:
Starling, UK boutique stuff (and made in taiwan? might be wrong about that)
Cotic, made in taiwan
Stanton, VERY boutique!

Theres also Orange another made in the UK brand (though they hard tails are made in Taiwan) but again boutique prices

Don't get me wrong I would love to support and ride UK manufactureres (all my 4 bikes have Hope brakes and/or hubs) butas for a UK made frame?maybe if I win the lotto. I would LOVE a BTR
  • 2 0
 don't forget curtis
  • 1 0
 @catweasel: there are approximately zero photos of US frames in the first six pages of his profile photos. A couple of sold Intenses...'buy local' may be an aspirational exhortation. Plans to get GG!
  • 2 0
 @catweasel: dont have a us made frame... Yet!
  • 1 0
 @ibishreddin: Well I like that your thinking about it and that in general it's on peoples radar more. If only there were more brands available, chicken and egg I guess. I've got a Guerrilla Gravity MegaSmash and love it, buying local was deffo part of the reason I originally started looking at them
  • 3 0
 Tax fiddles R us
  • 1 0
 I thought Go Outdoors stayed open during the covid 19 debacle due to selling bicycles to key workers?
  • 1 0
 Waheeeyyy







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