The UK's antitrust regulator said on Thursday that JD Sports (JD.L) may have to sell Footasylum in order to address concerns about competition.
The Competition and Markets Authority (CMA) said the takeover "could lead to a worse deal for shoppers", in a decision that has led analysts to label Footasylum "one of the most cursed names in retail".
The CMA blocked the £90m takeover last year but reversed its decision following an appeal from the sportswear seller.
"Since our original inquiry, we have gathered a significant amount of additional evidence, including on the impact of coronavirus, and we still have concerns about JD Sports’ takeover of Footasylum," said Kip Meek, chair of the group conducting this inquiry.
"This deal would see Footasylum bought by its closest competitor and, as a result, shoppers could face higher prices, less choice and a worse shopping experience overall."
The regulator said that it provisionally found blocking the deal may be the only way to address the concerns.
The deal was originally agreed in March 2019 and would have seen the sportswear giant take over Footasylum's 64 store footprint. It said it is "perplexed and again disappointed" by the findings.
This will be another blow to Footasylum, which suffered a string of profit warnings due to poor high-street conditions, increased competition and disruption at its warehouses after it floated in 2017.
According to Russ Mould, investment director at AJ Bell, the last reported full-year numbers from Footasylum as a standalone business were from the year to 24 February 2018 where it saw revenue jump by a third to £195m. JD generated £3.16bn in sales in the comparable period (the year to 2 February 2018), and its most recent full year saw revenue rise to £6.17bn.
"So even if Footasylum had continued to grow at a fast rate, it would still only represent a fraction of JD’s overall sales," said Mould.
“What’s certain is that the endless probes by the authorities since the Footasylum acquisition was announced have been a major distraction to JD management. They might even wish the deal had never happened at all.”
Watch: JD Sports 'perplexed' as Footasylum takeover again faces being blocked by regulator