Grocer welcomes Home in £1.3bn takeover

The deal would create the UK’s largest general merchandise retailer and comes at a time when Sainsbury’s and its big four rivals, Tesco, Asda and Morrisons, are struggling in the cut throat food market.

A combined Sainsbury’s and Argos would offer over 100,000 products from 2,000 stores, making it bigger than the UK clothing and general merchandise business of Tesco, Britain’s biggest retailer, John Lewis, Marks & Spencer and Amazon.

​​Sainsbury’s ​c​hief ​e​xecutive Mike Coupe ​said: “Our customers want us to offer more choice, that choice to be faster than ever, driven by the rise of mobile phones and digital technology.”

​If the deal goes ahead, the combined group would have 25 million customers.

​Sainsbury’s chief financial officer John Rogers said: “We’re confident that we’re able to persuade our investors and those of Home Retail that this is a deal that both should support.”

However analysts said the deal, which is thought to be Sainsbury’s fourth offer for Home Retail, could be trumped.

Investec analyst Alistair Davies said: “Sainsbury’s offer for Home Retail is not a ‘knock-out’ in our view.”

But he noted it would be hard for a rival to unlock the £120m of annual savings and benefits Sainsbury’s has identified the deal would deliver in three years.

​Other analysts questioned the deal, pointing to poor trading at Argos and fears that Sainsbury’s management could be distracted by the integration at a time when the supermarket sector is under huge pressure.

Steve Clayton, ​h​ead of ​e​quities ​r​esearch​ at​ Hargreaves Lansdown​, said:​ “Sainsbury​’​s is looking to buy a struggling business when the supermarket itself is fighting strong headwinds. The deal does give Sainsbury​‘​s greater non-food distribution and the supermarket aims to save costs by moving Argos outlets into concessions within Sainsbury’s stores, but the takeover will be a considerable strain on management time when they already have quite a lot on their plate.”

Mr Coupe dismissed the concerns.

“There’s limited risk from an execution point of view because it’s largely about property, a core strength of Sainsbury’s,” he said.

Sainsbury’s and Home Retail have agreed a three-week deadline extension to February 23. ​The £340m sale of Home Retail’s DIY chain, Homebase, to Australian business Wesfarmers is said to be a condition of the deal.

The ​deal will also need the approval of shareholders and the competition watchdog.

​Around half the £120m of annual savings from the deal would come from relocating Argos stores into Sainsbury’s supermarkets as concessions which could result in Argos closures, and expanding Sainsbury’s click and collect service.

A further £40​m of savings ​could come from​ combining the two head offices, while a further £20​m of synergies would come from selling Sainsbury’s clothing and homewares to Argos customers.

​Analysts believe between 150 and 200 Argos stores could be hit, but Sainsbury’s would not be drawn on how many it would close.