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LONDON (Alliance News) - Home Retail Group PLC shares soared on Tuesday after FTSE 100 supermarket J Sainsbury PLC revealed it had made a cash and shares takeover offer for the troubled Argos and Homebase owner in November, which was rejected.
Sainsbury's did not provide any details on the value of the proposed takeover deal, but Home Retail released its own statement late Tuesday confirming it had rejected the offer because it under-valued the company and its long-term prospects.
That left the supermarket considering its position as it outlined its rationale for the combination. It will have until February 2 to make a firm offer for Home Retail or walk away, under the UK Takeover Code.
In a statement late Tuesday, Home Retail Group advised its shareholders to take no action.
Home Retail shares closed up 40% on Tuesday to 138.20p, valuing the business at around GBP1.11 billion. Sainsbury's shares, meanwhile, closed down 5.1% to 242.3p to make the stock the worst performer in the FTSE 100 and giving the grocer a market capitalisation around GBP4.66 billion.
Home Retail is in the midst of a sweeping revamp of its business in an attempt to catch up to changing trends in the UK retail industry which has left it struggling to keep pace. At Argos, which has traditionally sold its products from desks at the front of large warehouse-style stores, Home Retail has been shifting thefocus to online sales and to a growing portfolio of concessions in other stores, including Sainsbury's.
The restructuring is even more severe at Homebase, Home Retail's DIY and garden centre chain, which has been shutting unprofitable stores, refitting others and attempting to boost online sales in the face of a structural shift in the DIY market in the UK. Young consumers are less likely than older generations to take on DIY tasks themselves, leading to a rise in hiring tradesmen to handle the work on their behalf.
Those problems caused Home Retail to outline plans in 2014 to close around a quarter of its Homebase stores by 2018, which was then followed in early 2015 by similar store closure plans from Kingfisher PLC, the owner of B&Q. In addition to the store closures, Home Retail has slashed head office jobs and closed a distribution centre in order to return Homebase to health.
The list of potential suitors for Home Retail Group was many and varied, though most of the firmer reports suggested any bid would be for either the Argos or Homebase businesses individually, rather than the whole company.
Sainsbury's had not been mentioned in the reports surrounding a possible bid for Home Retail, but the two groups have been working together on the Argos concessions. In addition, should Sainsbury's be successful in its bid, it would buy back the Homebase business it founded in 1979, in a joint venture with Belgium's GB-Inno-BM, and sold in 2000 to a venture capital firm. The business was sold again in 2002 to GUS and was later spun out of that business as part of Argos Retail Group, later renamed Home Retail Group.
The grocer on Tuesday said it had approached Home Retail regarding an offer for the whole company, comprising both Argos and Homebase, although in its statement made multiple references to Argos and little reference to Homebase, perhaps suggesting it would intend to sell off the Homebase business.
Sainsbury's said it believes the combination of the two groups is an "attractive proposition" for both customers and shareholders of both companies. Adding Argos and Homebase would be in line with statements made by Sainsbury's in its interim results in November, when it said that while consumers are seeing an increase in disposable income, due to food deflation, lower oil prices and real wage growth, they do not appear to want to spend this on groceries.
Sainsbury's said a merger with Home Retail would create a "food and non-food retailer of choice for customers", adding it would boost the multi-channel sales capabilities of the businesses and would optimise the use of their respective retail space estates. Sainsbury's said the combined business would have an attractively located store estate in the UK, with a strong presence in food and grocery, clothing, homewares, toys, stationery, electricals, furniture and other general merchandise lines.
"The combination is an opportunity to bring together two of the UK's leading retail businesses, with complementary product offers, focused on delivering quality products and services at fair prices, through an integrated, multi-channel proposition," Sainsbury's said in a statement.
By Karolina Kaminska; karolinakaminska@alliancenews.com @KarolinaAllNews and Sam Unsted; samunsted@alliancenews.com; @SamUAtAlliance. Updated by Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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