Mike Ashley, the billionaire entrepreneur behind Sports Direct, will be forced to justify his recent purchase of a near-5 per cent stake in JJB Sports after competition investigators said that they would examine the deal.

Mr Ashley, Sports Direct's largest shareholder, will have to convince the Office of Fair Trading (OFT) that his 4.8 per cent stake, acquired for £3.4 million on October 17, does not give him effective control over JJB.

The OFT is concerned that a combination of the two companies might create a sports retailing giant that would dominate the market and lessen competition.

The issue of whether Mr Ashley's stake gives him a “material influence” over JJB is crucial. If the OFT decides that it does, it will treat the two companies as if they have merged — even if they remain separate corporate entities.

Since the OFT has added Mr Ashley's October purchase to its list of mergers under consideration, Mr Ashley and his lawyers will need to convince the watchdog that the 4.7 per cent holding is a basic shareholding that does not confer any extra influence.

If the OFT decides that Sports Direct does control JJB and it can show that a combination of the two companies might distort the market, it will refer the case to the Competition Commission. After its own investigation, the Commission can compel Mr Ashley to sell some or all of his stake, as it did when it ordered BSkyB — in which News Corporation, parent company of The Times, has a 39.1 per cent stake - to reduce its stake in ITV in September.

JJB shares have more than halved since Mr Ashley bought the stake, leaving him with a paper loss of around £1.8 million last night. News of a possible forced sale pushed shares lower yesterday after Altium Securities changed its recommendation to “sell” following the OFT announcement.

Lawyers for Sports Direct, JJB and their suppliers or competitors have two weeks to petition the OFT over whether the stake gives Mr Ashley control and whether that would distort the market. Sports Direct said that the 4.8 per cent purchase was a standard share acquisition that does not confer any additional rights.

However, the situation is complex because Sports Direct owns an additional 17 per cent of JJB through contracts for difference, a type of derivative, although it said that these do not confer voting rights.

Chris Ronnie, the chief executive of JJB, used to work for Mr Ashley and the two are said to remain close. Mr Ashley also owns shares in JD Sports, which last week bought a stake in JJB.

Becket McGrath, a competition partner at Berwin Leighton Paisner, the law firm, said: “Deciding what is and is not a ‘material influence' is not simply a question of how large a share holding is. The OFT will also need to consider additional aspects, such as whether the shares entitle the holder to a board seat, as well as examining the personalities involved and the relationships between them.”

JJB said that it would co-operate fully with the OFT investigation.

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