Sainsbury’s has made a formal offer to buy Home Retail Group, parent of Argos, just half an hour before the deadline.
It is offering 0.321 Sainsbury’s shares plus 55 pence cash for each HRG share, valuing the HRG business at £1.2 billion.
The Sainsbury’s offer came just minutes after South Africa retailer Steinhoff said it would not launch a formal bid for HRG.
Logistics plays a major part in the rationale of the deal. Sainsbury’s said the deal would:
* Bring together multi-channel capabilities including digital, store and delivery networks to provide product fulfilment to store or to home across a wide range of food and grocery, clothing, homewares, toys, stationery, electrical goods, furniture and other general merchandise;
* Optimise the use of Sainsbury’s and HRG’s combined retail space. The Combined Group would have attractively located stores across the UK and Ireland, with an enhanced supply and delivery network;
* Create the ability to relocate existing Argos stores into Sainsbury’s supermarkets, reducing fixed operating and store labour costs when compared to standalone Argos stores;
* Create the ability to expand the Argos store network by opening new infill Argos stores within Sainsbury’s supermarkets in catchments not currently served by Argos, delivering additional sales, creating new retail roles and delivering attractive returns on investment;
* Create cross selling opportunities between the two businesses through the relocations and infills and from the opportunity to offer Argos Click and Collect services across the Sainsbury’s store network.
In addition, it said, that following due diligence, Sainsbury’s now expects a higher level of EBITDA synergies of not less than £160 million in the third full year after Completion. This represents an increase of one third compared to the previous estimate of not less than £120 million EBITDA synergies included in the Agreement Terms Announcement.
David Tyler, chairman of Sainsbury’s said: “The UK grocery retail industry is undergoing a period of intense change in customer shopping behaviour and in the competitive environment. Against this backdrop, Sainsbury’s has performed resiliently by offering great quality products at fair prices, by providing a differentiated service, and by developing strong multi-channel capabilities. All of this continues to be underpinned by our core values.
“This combination with HRG presents an opportunity to accelerate our strategy, delivering compelling revenue and cost synergies. We will create a multi-product, multi-channel proposition with fast delivery networks that we believe will be very attractive to the customers of both businesses.”
The board of Home Retail Group issued a statement saying it notes Sainsbury’s views on the strategic opportunities and synergies available through a combination of the businesses and Sainsbury’s recognition of the talent in both our management and our colleagues.
“Sainsbury’s has stated its wish to obtain the recommendation of the Board of Home Retail Group for its offer, and the Board of Home Retail Group looks forward to working with Sainsbury’s towards such recommendation.”