Home Retail Group backs Sainsbury's £1.4-bn takeover offer

With Home Retail Group backing Sainsbury's £1.4-billion acquisition bid, four months of talks between the supermarket group and the owner of Argos to form a food and general merchandise retailer have ended.

The deal would go ahead on the terms settled by Sainsbury's two weeks ago after Steinhoff of South Africa opted out of the race. At the time, Home Retail said it would recommend the offer to its shareholders.

Sainsbury's will pay 55p in cash and 0.321 of its own shares for each Home Retail share, valuing Home Retail at £1.2 billion, or 143.7p a share on the basis  of Sainsbury's closing share price on Thursday.

Home Retail shareholders would also get 25p a share from the £200 million sale of its Homebase chain and 2.8p a share in lieu of a final dividend for the financial year that closed last month. With the payments, the value of the deal rises to £1.4 billion.

According to some analysts, Home Retail might seek to extract a higher price from Sainsbury's before recommending the offer to shareholders. However, since not other bidder was in sight, the offer remained unchanged.

The retailers had been in talks since Sainsbury's revealed in January it had expressed an interest in Home Retail in November. Sainsbury's had secured a deal, it said, would help it take on Amazon and diversify away from the ultra-competitive food retail market.

According to commentators, the tie-up would create a £6-billion non-food operation, putting the new business in the same league as John Lewis and Marks & Spencer and also taking on Amazon.

However, according to Sainsbury's it planned to relocate many Argos stores within under-occupied space in its supermarkets, threatening the closure of up to 200 sites.

Argos currently has 845 stores and employs 30,000 people and notched up sales of over £4 billion for the year to the end of February.

Though Sainsbury's had not confirmed the number of sites it would close, it said that after the takeover there would be over 2,000 sites including concessions within and "click and collect" points as well as stores.