Shock as JJB buys TJ Hughes

JJB SPORTS stunned investors with a £42m deal to buy TJ Hughes, the discount department stores chain hit last year by the discovery of a £3m black hole in its accounts.

Britain's biggest sports retailer, widely thought to have overpaid for its £290m acquisition of Sports Division in 1998, plans to run TJ Hughes as a stand-alone division.

It takes with it the team led by TJ Hughes chief executive George Foster, who gave up plans for a management buyout in January. Scottish entrepreneur Chris Gorman had earlier attempted to buy the group for 95p a share.

Cash-generative JJB would have been debt-free by July this year. For the past year, it has been under pressure from investors to do something with its strong balance sheet.

Finance director David Greenwood said: 'We looked around the retail market and decided the discount sector was attractive. A return of cash to shareholders would have seemed to be such a negative approach.'

JJB has used Arthur Andersen to carry out extensive due diligence on TJ Hughes' financial position. PricewaterhouseCoopers was dropped as the department stores group's auditors last year after the discovery of a huge overvaluation of stock. 'As far as everyone is concerned, that black hole is behind TJ Hughes,' said Greenwood.

But shares in JJB plummeted 35p to 375p as investors were less confident. 'Why is JJB, a focused sports retailer, doing this deal?' asked one fund manager. TJ Hughes shares jumped 3 1/2p to 138p.

Gorman is thought to have begun negotiations at about 130p, but dropped the price suddenly on closer due diligence, fearing further write-downs would have been necessary for out-of-date stock. He is not expected to make another bid.

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