News

Sainsbury’s agrees £1.3bn deal to buy Home Retail Group

Sainsbury’s has preliminarily agreed to purchase the Home Retail Group, the owner of Argos, for £1.3bn, with an aim to take on rival company, Amazon.

Britain’s second-largest supermarket has proposed to pay Home Retail shareholders 55p in cash and 0.321 Sainsbury’s shares for each Home Retail share, valuing the group at £1.3bn [1].

Home Retail shareholders would then own roughly 12% of the combined group [2].

In addition, Home Retail shareholders will also receive a pay out of 25p per share return from the sale of Homebase, and 2.8p per share as compensation of final dividend, which was due to be paid out on 27 February [2].

The takeover is part of Sainsbury’s Chief Executive, Mike Coupe’s, desire to serve customers “wherever and whenever they want to shop”. The deal will “bring together multi-channel capabilities, including digital, store and delivery networks”, Sainsbury’s said today, creating “a food and non-food retailer of choice” for customers [3].

Home Retail Group’s share price fell in early trading, opening down 2.6%, while the Sainsbury’s share price was up 1.8% in mid-morning trading [4].

There has been an agreement to sell Homebase to Australian corporation Wesfarmers, in a £340m deal, meaning the focus for Sainsbury’s is on Argos. This deal will see £200m returned to shareholders and would also lighten Home Retail’s debts, with £1.4bn of lease liabilities from Homebase stores shifted off their books [4].

Analyst at Shore Capital, Clive Black, remains cautious about whether the Argos deal will succeed. “Such an imponderable item is central to the cost savings that must be factored into this deal’s mathematics,” he said [3].

Sainsbury’s stands by the deal and remains optimistic. It plans to combine Argos outlets in some of its 1,304 existing stores, as well as selling items online, and expects to generate cost and revenue gains of at least £120m [3].

 

[1]. The Guardian.  ‘Sainsbury’s agrees terms for £1.3bn deal to buy Home Retail Group’. theguardian.com

[2] Financial Times. ‘Sainsbury’s and Home Retail agree deal’. ft.com

[3] Telegraph. ‘Sainsbury’s returns with £1.3bn offer for Argos’. telegraph.co.uk

[4] City AM. ‘Sainsbury’s share price rises as it paves the way for Argos takeover with £1.3bn bid for Home Retail Group – and HRG board is backing the deal’. cityam.com