Sports Direct share price: what’s the outlook after Game Digital bid?

Sports Direct International is looking to acquire British video game company GAME Digital in a deal valued at £51.9 million.

The deal announcement was made shortly after Mike Ashley upped its stake in GAME Digital to 38.5%, with the takeover bid valuing the business at 30p a share under a cash bid, representing a 27% premium.

Sports Direct warns of job cuts if deal approved

If the deal goes ahead, Sports Direct has warned that it could lead to job cuts at GAME Digital as some high street stores may close or be merged.

A similar process occurred following the acquisition of other ailing high street retailers, including House of Fraser and Evans Cycles which Ashley acquired for £90 million and £8 million respectively.

Following the acquisition of Evan Cycles, Ashley made it clear that ‘in order to save the business’ half of its 62 stores, which employ 1,300 people, must be closed.

The number of jobs lost would likely be higher without Sports Direct acquiring both businesses, with House of Fraser deal expected to save around 6,000 jobs as Ashley plans to turn the department store into the ‘Harrods of the High Street’.

GAME unable ‘to weather’ market pressures alone

Sports Direct said that GAME lacked the strength to ‘weather the pressures' it is facing as a standalone business.

"Sports Direct believes that the offer, in providing GAME with the wider benefit of Sports Direct's operating and other experience and increased support, will secure Game's future and allow it to navigate these pressures," the company said.

The video game retailer has struggled to keep pace with its online-only rivals, with sales of hardware and gaming consoles in decline.

According to its half-year results, revenues fell 4.7% to £492.9 million. However, intensive cost-cutting measures and increased sales margins helped the company’s pre-tax profits rise more than 20% to £14.8 million.