Sainsbury’s announced yesterday that it had a bid for Home Retail Group, owner of Argos and Homebase, rejected in November. The move sent shockwaves through the industry and was a major story in today’s papers. Here’s what industry experts are saying about the mooted acquisition.
‘Sainsbury’s November offer for Home Retail Group is an aggressive move that signals urgency to tackle head-on the pressures weighing on the retail industry,” says Jonathan Buxton of Cavendish Corporate Finance. ”The recent relative good fortune of Britain’s number 2 supermarket puts it in a stronger position to make such a move, but the real challenge would be to successfully integrate a sprawling non-food retailer imperilled by competition within its own sector.
“Sainsbury may with a revised offer risk paying an excessively high price for the ailing group”
”At the heart of the present troubles lies a cumbersome real estate burden – hence optimising combined retail space through closer ties with Argos, the focus of the deal, could spell one way out of Sainsbury’s predicament. HRG’s refusal, however, is cause for concern as Sainsbury may with a revised offer risk paying an excessively high price for the ailing group.”
Nick Bubb, of The Daily Retailer, says the move forces us to ”wonder why the recent jv with Argos to open small concession units inside Sainsbury has encouraged it to want to own the whole thing (despite the intense competition from Amazon and Dixons Carphone)…There is some logic, at the right price, but the onus will now be on Home Retail to have something bullish to say about Xmas trading in the scheduled update on Jan 14th (or earlier) and we would be surprised if Sainsbury don’t “put up” soon after that, ahead of the Feb 2nd Takeover Panel deadline.”
Have to wonder how such a deal would stack up. They must think the Argos business has some value to solve space issues?— Steve Dresser (@dresserman) January 5, 2016
”The potential acquisition of HRG is not inconsistent with Sainsbury’s strategy but it does represent a considerable extension of what we felt management was thinking and we sense the market too,” says Clive Black of Shore Capital. ”From a brand and customer complementarity perspective we are, perhaps naively, much more comfortable with Sainsbury’s reacquainting with Homebase than we are it becoming ever closer to Argos, noting the ongoing tie-up at the moment with the latter through trial concessions. Whilst Sainsbury’s and Argos are national brands, we place a whole lot more robustness on the former than the latter and that is not to deny the challenges faced by the grocer in recent years.”
“Whilst Sainsbury’s and Argos are national brands, we place a whole lot more robustness on the former than the latter”
Tony Shiret of Haitong Research says it is “a little surprising that Sainsbury would be confident enough to want to acquire HRG on the basis of such a limited period of shared experience in so few stores, without even the benefit of knowing how they traded in the peak season.
“The list of benefits in the eyes of Sainsbury’s just does not look very persuasive in its own right either – before considering the baggage that would come with it. In particular the aim to “create a food and non-food retailer of choice for customers building on the strong heritages of both businesses whose brands are renowned for trust, quality, value and customer service” appears to have flowed from the pen of an investment banker who has not been in Argos for a while/ever.”