Sainsbury's bid for Argos parent company Home Retail Group is baffling investors: Mike Coupe must explain the maths behind the deal

 
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Coupe needs to provide more detail around the deal (Source: Getty)

"When my information changes, I change my mind. What do you do?” This old quotation (which may or may not have been uttered by economist John Maynard Keynes) came to mind yesterday when investment giant Old Mutual said it would accept Sainsbury’s 161.3p per share offer for Home Retail Group, despite previously arguing that any offer would need to “start with a two in front of it” before even being considered.

Part of the reason for the about-turn, the company said, was the provision of “more detail on the opportunities for Home Retail within the Sainsbury group”.

Such words would have been music to the ears of Sainsbury’s boss Mike Coupe, who has held an air of “if only you could see what I can see” while trying to convince people of the deal’s merits. But now, Old Mutual aside, many more sceptics will need to have their minds changed.

From the most fastidious City analyst to the average shopper on the street, onlookers are baffled as to why a struggling supermarket would want to buy a struggling catalogue store. Home Retail’s share price collapsed by more than 50 per cent between February and December last year – a drop that, while paving the way for this deal, also betrays Argos’ fundamental problems.

Read more: Sainsbury's paves the way for Argos takeover

The maths behind the deal seem to add up, especially the £60m+ in synergies from moving Argos out of many of its stores.

Strategically, however, many questions remain. Can the move really nudge shoppers towards the kind of “cross-selling” that bosses expect? And will this (more than) make up for lost sales, from customers who fail, or refuse, to travel to the new locations?

More importantly, what about Sainsbury’s and Argos’ core focuses – how does this takeover help them confront the assault from nimble, innovative supermarkets on the one hand, and savvy internet retailers on the other? Could such an ambitious deal turn into an unwelcome distraction?

The tie-up between the firms would be no shotgun wedding, admittedly – a trial of 10 concessions has given the couple time to get to know each other. But Coupe needs to provide more evidence on this trial, and more evidence of his broader rationale. When the information changes, more investors might change their minds.

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