Sainsbury’s £1.3bn bid for Argos owner

By Alice Foster contact

- Last updated on GMT

Sainsbury and Argos have agreed the key terms of a “possible offer”
Sainsbury and Argos have agreed the key terms of a “possible offer”

Related tags: Retailing

Sainsbury has agreed the key terms of a £1.3bn offer for Argos owner Home Retail in a bid to create a food and non-food retail giant.

A number of high street Argos stores could be closed and turned into concessions in Sainsbury’s stores as part of the proposed cash-and-shares deal. 

Sainsbury would also be able to sell its clothing and homeware ranges through Argos, while removing duplication and crossovers between the two businesses. 

The retailers said in a statement that the takeover would create a “food and non-food retailer of choice”, ​optimise the use of retail space and deliver significant cost savings. 

Takeover deadline today​ 

View from analyst

If successful this could be a brave and decisive move by Sainsbury.

  • Jon Copestake, retail analyst, Economist Intelligence Unit

The key terms of the “possible offer”​ were published ahead of a ‘put up or shut up’ takeover deadline on Tuesday (February 2). The deadline has now been extended for three weeks. 

Home Retail’s board saw it as an “attractive opportunity” ​for shareholders who would receive 55p in cash and 0.321 of Sainsbury’s shares for each of their shares. 

Sainsbury’s offer was said to be equivalent to 161.3p per share. 

Economist Intelligence Unit retail analyst Jon Copestake said the takeover would create “two retailers under one roof”​ in the medium term. 

‘Brave and decisive move’​ 

If successful this could be a brave and decisive move by Sainsbury – allowing the retailer to diversify its appeal, repurpose its store space and simplify its own offering,” ​Copestake said. 

“However, there is a flip side to this. Argos has developed a strong multichannel offering but not one that necessarily lends itself to grocery delivery and the two retail subsectors are fairly divergent.” 

Shore Capital analysts Clive Black and Darren Shirley warned that Sainsbury may end up “buying problems”​ faced by Argos but also said there was a “real estate prize”​ on offer.   

“What we mean by this is that is we can certainly foresee the closure of high street Argos stores,”​ Black and Shirley said. 

“Less clear is whether or not high street Argos customers will simply get into their cars and drive to a Sainsbury’s supermarket for the Argos proposition. 

“Such an imponderable item is central to the revenue synergies that must be factored into this deal’s mathematics.”​ 

The Sainsbury’s deal depends on Home Retail’s agreed sale of Homebase to Australian retail giant Wesfarmers. The Homebase sale would see £200M returned to shareholders. 

Key figures – expected savings and costs

  • Earnings before interest, tax, depreciation and amortisation (EBITDA) synergies: at least £120M by 2016
  • One-off costs needed to make synergies: approximately £140M over three years 

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