Sainsbury’s plots expansion of Argos brand as it makes £1.4bn bid for Home Retail Group
Sainsbury’s has made a bid of close to £1.4bn for Argos owner Home Retail Group as it looks to create a “leading food and non-food retailer of choice for customers”.
The £1.4bn cash and shares deal is an increase on the £1.2bn offer Sainsbury’s originally made, and had turned down, in November last year but which was only revealed in January. It then upped the offer to £1.3bn but was outbid by Steinhoff, with the two retailers given until 5pm today (18 March) to put in a final offer.
READ MORE: How Sainsbury’s bid for Home Retail could shake up UK retail
However Steinhoff pulled out just an hour before the Sainsbury’s offer. It has instead made an offer for electrical retailer Darty.
Bringing the Argos brand to more customers
Speaking on a conference call following the bid announcement this afternoon (18 March), Sainsbury’s CEO Mike Coupe said while some Argos stores will close in order to open concessions in Sainsbury’s supermarkets the plan is to have more Argos stores overall by opening concessions in areas that don’t currently have an Argos.
“We anticipate having more Argos outlets overall. We will move existing stores into shops and open new Argos’s in places where they don’t currently exist. This will bring the Argos offer to more customers and the brand to a greater percentage of the UK population,” he said.
CFO John Rogers also said Sainsbury’s now expects to see increased synergies from the deal. It had envisioned £120m in savings but now expects that figure to be closer to £160m.
“We think there are an increased number of Argos concessions we can put in the Sainsbury’s estate. This is a great opportunity to grow the Argos brand through this transaction,” he said.
Creating a leading food and non-food retailer
Sainsbury’s said the move will create a “leading food and non-food retailer of choice for customers building on the strong heritage of both the Sainsbury’s and HRG businesses whose brands are renowned for trust, quality, value and customer service.
However Coupe cautioned that head office jobs could be lost as it looks for synergies but would not be drawn on whether this would be in marketing. He said the retailer would look for the “best talent” from across both businesses, but that Argos would continue to be run as a standalone business.
Sainsbury’s chairman David Tyler says: “The UK grocery retail industry is undergoing a period of intense change in customer shopping behaviour and in the competitive environment. Against this backdrop, Sainsbury’s has performed resiliently by offering great quality products at fair prices, by providing a differentiated service, and by developing strong multi-channel capabilities. All of this continues to be underpinned by our core values.
“This combination with HRG presents an opportunity to accelerate our strategy, delivering compelling revenue and cost synergies.
“We will create a multi-product, multi-channel proposition with fast delivery networks that we believe will be very attractive to the customers of both businesses.”
David Tyler, chairman, Sainsbury’s
Sainsbury’s expects the deal to lead to profitable sales growth by optimising retail space and offering the opportunity to relocate existing Argos stores in Sainsbury’s supermarkets and open new stores in areas not currently served by Argos.
There are also opportunities to cross-sell, offer better multichannel capabilities and financial services. Sainsbury’s says it expects synergies of £160m in the third full year after the deal is completed and double-digit earnings per share growth.