Business

Sainsbury considers offer for Argos owner

Deal with Home Retail Group would combine two of the UK’s largest retailers

Supermarket Sainsbury’s has confirmed it made an approach for Argos owner Home Retail Group, which has been rejected. Sainsbury’s said it is considering its position, adding that there can be no certainty that it will make a formal offer for the business, which also owns DIY chain Homebase. (Photograph: PA Wire)
Supermarket Sainsbury’s has confirmed it made an approach for Argos owner Home Retail Group, which has been rejected. Sainsbury’s said it is considering its position, adding that there can be no certainty that it will make a formal offer for the business, which also owns DIY chain Homebase. (Photograph: PA Wire)
Tue Jan 05 2016 - 14:21

J Sainsbury is considering making an offer for Home Retail Group in a deal that would combine two of the UK's largest retailers and add everything from sofas to suitcases to Sainsbury's line-up.

Home Retail, the owner of Argos stores and the Homebase home-improvement chain, rejected a cash-and-share approach in November, London-based Sainsbury said in a statement Tuesday. The supermarket company said it is now "considering its position," and has until February 2nd to decide whether to make a formal offer under UK takeover rules.

Shares in Home Retail Group rose as much as 34 per cent to 132.7 pence in London, giving the company a market value of about £1.1 billion.

Sainsbury fell 4.9 per cent to 242.9 pence, after gaining as much as 8.1 per cent.

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Sainsbury is no stranger to Home Retail, having started opening Argos outlets inside about 10 of its supermarkets last year. The grocer's chairman, David Tyler, knows Homebase from his time as finance director of GUS, which acquired the chain in 2002 and spun it off with Argos in 2006, creating Home Retail Group.

Greater scale

"The approach is a bit of a surprise," said Bryan Roberts, an analyst at TCC Global in London. "The relationship between Sainsburys and Home Retail has deepened over the last 18 months with the addition of Argos concessions in Sainsbury stores." Bringing the companies together will enable them to optimize use of their retail space, while enhancing their supply and delivery networks, Sainsbury said in the statement.

Past speculation

Home Retail has been subject to takeover speculation for some time. The Sunday Times reported in November that private- equity companies were considering an offer. The same publication said last month that Leroy Merlin may make a bid for Homebase. At Argos stores, shoppers pick products from a catalog and have it brought out from a back room or delivered to their home. The chain's sales have declined as supermarkets including Tesco and web retailers such as Amazon.com have expanded into areas including toys and consumer electronics.

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