Sainsbury’s deal to acquire Argos is a broadly encouraging one to our minds, showing us that Sainsbury’s has ambition, can display entrepreneurship, and that it is opportunistic, too.
That said, the deal is not without risk. Sainsbury’s is buying a business that has displayed considerable problems in recent years with particular competition in the tough UK electronics market, which embraces the likes of Amazon. To harvest the benefits of Argos, Sainsbury’s also has to engage in considerable real estate management, whereby it will need Argos’ customers to migrate to a Sainsbury’s superstore.
The deal could be an inspired move by Mike Coupe & co, if effective execution marries with no distraction from the core chain. While so, there is one body that gives us cause for concern on the potential Sainsbury-Argos combination and that is the CMA.
With Sainsbury’s proclaiming that it will become Britain’s largest non-food retailer, it would be understandable for the CMA to think about what the combination means for shoppers and the industry alike. Sainsbury’s anticipates that such machinations will lead to clearance in Q3 this year.
We worry about this scenario being derailed by the CMA deciding to go to a phase two investigation, as it did, remarkably, with Poundland’s much smaller acquisition of 99p Stores. On that investigation the CMA was arguably little short of a disgrace, requiring pointless pseudo-academic analysis at huge cost to Poundland’s shareholders, only to come out with no remedies whatsoever. Indeed, we deem that the time has come for the political elite to start investigating the efficacy of the CMA.
The Poundland experience, which followed the Dairy Crest and AG Barr & Britvic debacles, leads us to be concerned that Sainsbury’s may also be caught up in due process, with damage potentially done to the underlying Argos business in a period when Sainsbury’s could end up writing big cheques for legal counsel for what is likely to be pretty meaningless analysis. Let us hope common sense, a phrase the CMA would do well to look up, prevails so that Sainsbury’s can try and harvest its ambition.
Clive Black is head of research at Shore Capital Stockbrokers