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LONDON (Alliance News) - The potential takeover of Home Retail Group PLC by J Sainsbury PLC was disrupted late on Friday after an established international retailer operating within the UK made its own offer for the owner of Argos and Homebase.
Steinhoff International Holdings NV is the disruptor, and the Frankfurt-listed company is the owner of bed retailer Benson for Beds and furniture store Harveys in the UK, and has other brands operating in Australasia, Europe and Africa.
Steinhoff said it has put forward a proposal to Home Retail seeking its recommendation for a possible all-cash offer, which would be for 175.0 pence per Home Retail share - considerably higher than the deal currently on the table from Sainsbury.
The overall value of the current Sainsbury offer implies a price of around 161.3p per Home Retail share, meaning Steinhoff's offer is around 8.5% higher than Sainsbury's offer.
Home Retail Group, in its own statement Friday, confirmed it has received the proposal from Steinhoff, which will have until March 18 to make a firm offer or walk away from the deal.
"The board is reviewing the Steinhoff proposal with its advisers and will make a further announcement in due course. Home Retail Group shareholders are advised to take no action at this time," said Home Retail.
The offer made by Sainsbury earlier this month was thought to be towards the lower end of the range that Home Retail would be willing to sell at, according to reports prior to the deal being unveiled - making the higher offer received from Steinhoff even more significant.
Both offers by Steinhoff and Sainsbury include a 25.0p per share payment to Home Retail shareholders from the GBP200.0 million capital return planned from the sale of DIY and garden centre chain Homebase to Australian conglomerate Wesfarmers Ltd - as both parties eye the Argos brand.
Steinhoff said it was "supportive" of the deal to sell Homebase. The question of what to do with the DIY chain was an issue for Sainsbury, as it is primarily interested in securing the Argos chain. Sainsbury originally founded Homebase and sold it off over a decade ago.
Steinhoff said its all-cash offer would be comprised of 147.2 pence per share in cash followed by another 25.0p payment per share from the sale of Homebase, and another 2.8 pence payment per share in lieu of a final dividend in respect of the financial year ending February 27, 2016.
Under the deal with Sainsbury, Home Retail shareholders would receive 0.321 of a new Sainsbury's share and 55.00p in cash for each Home Retail share, plus the 25.0 pence per share from the Homebase sale.
Importantly, the Sainsbury deal is conditional on the sale of Homebase to Wesfarmers being completed, with the deal worth around GBP340.0 million. Currently, the sale of Homebase is expected to occur in the first quarter of 2016.
Steinhoff has not yet revealed what its plan for Home Retail, specifically Argos, would be if its bid is successful. Sainsbury wants to snap up the Argos brand to create a "leading food and non-food retailer of choice for customers" and because it believes it can contribute considerable earnings to its overall results in the first year of ownership and can deliver substantial cost synergies.
The break-up and sale of Home Retail has come as the group has been desperately trying to revamp the struggling business in the hope that modernising and establishing more of an online presence at both Homebase and Argos would attract more customers.
Unfortunately, the investments and restructuring plans have been undertaken amid falling high street footfall, which has put pressure on sales growth and, with the extra spending and restructuring costs, on margins.
Steinhoff Friday said it reserves the right to make a lower offer than 175.0 pence per share if it can agree a lower price with Home Retail or if another party excluding Sainsbury makes an offer that is lower than 175.0p per Home Retail share.
"Steinhoff is making this announcement to ensure that Home Retail Group shareholders are fully informed while making any decision in connection with the possible offer announced by J Sainsbury PLC," said the potential new bidder.
"There can be no certainty that a firm offer will be made, nor as to the terms on which any firm offer might be made. The board will issue a further statement if and when appropriate," Home Retail said Friday.
Steinhoff has three core divisions operating around the world, employing over 90,000 people, focused around household goods such as furniture, general merchandise like clothing and footwear alongside a division housing automotive dealerships it owns in South Africa. Steinhoff also has a property portfolio which it describes as a "key strategic component" for its retail businesses.
Steinhoff has a current market capitalisation of around EUR18.00 billion and reported pro-forma revenue of EUR13.20 billion in the financial year ended June 30, delivering earnings before interest, tax, depreciation and amortisation of EUR1.70 billion.
Home Retail shares closed down 1.2% to 153.38 pence per share whilst Sainsbury shares closed down 1.2% to 259.92 pence.
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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