Sainsbury's is close to clinching a £1.3bn deal to buy Home Retail Group after improving its offer ahead of today’s deadline.
The supermarket chain made an initial bid of around £1bn for the Argos owner in November, saying a combination of the two businesses would create a retail empire to rival John Lewis and Amazon. The bid was rejected by Home Retail’s board as too low.
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.
However, the pair are thought to have made progress this weekend over the price, which is expected to be in the range of 160-165p per share and would value Home Retail at £1.3bn.
Sainsbury’s has until 5pm today under Takeover Panel rules to make a formal offer or walk away.
The pair are expected to either announce an agreement first thing this morning, or ask for an extension to the deadline in order to gain some extra time to thrash out the final details.
Both parties declined to comment.
Read more: Sainsbury's makes second bid for Argos owner
Home Retail has already agreed to the sale of its DIY chain Homebase to Australian conglomerate Wesfarmers and the sale is still expected to go ahead with Sainsbury’s buying the retained group.
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.
Analysts remain undecided over the benefits of a deal for Sainsbury’s. Argos posted a tough Christmas quarter while Sainsbury’s faces its own set of challenges in the grocery market.
However, if an agreement is announced, the company would be able to brief the City more fully on the financial details of the deal and in turn gain further shareholder support.
Shore Capital analyst Clive Black said he remained “torn” over the benefits of a merger between the two retailers.
“Those with a deeper knowledge of Argos than us point out the structural challenges faced by the business and, as such, Sainsbury’s may be buying problems where solutions do not appear to be a matter of lifting a package from a shelf. Indeed, we remain intrigued and concerned to see if the real estate prize, highlighted in the market release to date, can be achieved in a profitable manner for Sainsbury’s,” Black said.
Sainsbury’s chief executive Mike Coupe has argued that the acquisition would “be strategically compelling and would create shareholder value”.
The supermarket has already been trialling Argos concessions inside its stores and believes that a deal would speed up its strategy of becoming a stronger multichannel operation for both food and non-food products.
Home Retail’s shares surged 11 per cent last night in anticipation of a deal while Sainsbury’s fell by one per cent.