Dick's $2.4B Foot Locker Deal Gets A Thumbs Down From Market, But Retail's Still Optimistic

Investors gave a thumbs down to Dick's Sporting Goods after it announced a $2.4 billion acquisition of shoe store chain Foot Locker (FL).

Dick's stock plummeted 14.6% to $179.05, in its worst intraday performance since August 2023.

Analysts questioned whether the acquisition would distract Dick's from its core business, raising doubts about the strategic fit of acquiring Foot Locker—a capital-intensive company facing operational challenges.

According to The Fly, TD Cowen analysts deemed the deal a "strategic mistake" and misallocation of capital. They cited risks to synergies and integration and the "clear structural risk" to Foot Locker's business for the downgrade.

Gordan Haskett said while Dick's "provided a compelling rationale for the deal," it still questions the added operational complexity of adding a global footwear business with small-format, mall-based stores that is still in turnaround.

Announcing the deal on Thursday, Dick's said it expects to operate Foot Locker as a stand-alone business unit and maintain the Foot Locker brands. It would finance the deal with cash and new debt.

Jefferies said that Nike (NKE) is an unexpected winner of the deal. "A better-run FL, combined with a cleaner marketplace and resonant innovation, should support NKE's recovery," the investment firm said in a note.

Foot Locker shares ended at $23.90, a whisker below Dick's offer price of $24, signaling investors' expectation that the deal will go through.

Most analysts adjusted their rating on the stock to 'Hold', and equivalent, as is typically the case during buyouts.

The deal comes days after the $9.4 billion buyout of Skechers by private equity firm 3G Capital, which was hailed as one of the biggest deals in the footwear sector.

On Stocktwits, the retail sentiment for Dick's has been 'extremely bullish' for two days after the Wall Street Journal first reported the deal news on Wednesday.

One user said with World Cup and Olympics on the horizon, the acquisition was timely and bring gains for Dick's.

Another user said sarcastically that they expect Nike to make an offer of Dick's.

Dick's stock is down nearly 22% year to date.

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