Sainsbury's has made an 11th hour offer for Home Retail Group, upping its bid to a total of £1.3bn.
Under the terms of the deal, Home Retail Group investors will received 0.321 Sainsbury's shares and 55p in cash per share. They will also receive around 25p per share and a further 2.8p instead of the dividend due to be paid for the year ending 27 February.
Together they imply a value of 161.3p per share. The offer represents a premium of 63 per cent of the closing price of Argos' parent company on 4 January.
Home Retail Group said it planned to recommend the deal, having rejected two offers – including one for £1bn – last month.
"While the board of Home Retail Group continues to believe in the prospects for the standalone company, it recognises that the possible offer will provide an attractive opportunity for Home Retail Group shareholders to receive a full valuation for their shares, and, through their shareholding in the combined group, also to participate in the value created by the combined group from the transaction," it said.
Home Retail Group's share price fell in early trading, opening down 2.6 per cent.
"The board of Home Retail Group has indicated to Sainsbury's that it is willing to recommend the key financial terms of the possible offer to Home Retail Group shareholders, subject to its fiduciary duties and reaching agreement on the other terms and conditions and the satisfactory completion of reciprocal due diligence."
Talks almost ground to a halt last month, with Home Retail’s board said to be holding out for roughly 170p a share – well above the 150p price Sainsbury’s was hoping to pitch.
HRG's board said the combination of the two was "an attractive proposition for the customers and shareholders of both companies, establishing a platform for long-term value creation".
Sainsbury's said the offer would boost its earnings per share in the first full year following completion, but by the third year after completing the deal it would result in "double digit earnings per share accretion and a low to mid-teens return on invested capital".
Sainsbury's share price was up 1.8 per cent in mid-morning trading.
As the supermarket previously set out, it believes the combination of Sainsbury's and Home Retail Group will "generate EBITDA synergies of not less than £120m in the third full year after completion".
Home Retail has already agreed to the sale of its DIY chain Homebase to Australian conglomerate Wesfarmers. The deal, which is worth £340m, will see £200m returned to shareholders and would also lighten its debts, with £1.4bn of lease liabilities from Homebase stores transferred off Home Retail’s books.