Home Retail agrees to recommend Sainsbury's offer

(ShareCast News) - The board of Home Retail has agreed to recommend Sainsbury's takeover offer, with the grocer applying for a court-sanctioned scheme of arrangement to process the acquisitionSainsbury's, which still expect the traction to complete in the third quarter of this year, has offered Home Retail shareholders 0.321 new shares in the supermarket group and 55p cash, plus 27.8p in dividends.The dividend is made up of a 25p payment for the Homebase sale plus the 2.8p Home Retail final dividend for the 2016 financial year, meaning a 'special dividend' referenced in the original announcement will not now be paid.With Sainsbury's shares closing at a price of 276.3p on Thursday, the offer values the Argos owner's shares at 143.7p apiece and the company's total equity at roughly £1.2bn.Adding in the dividend payments due, the deal values Home Retail at 171.5p per share, or roughly £1.4bn in total.The acquisition will need to be approved by Home Retail shareholders, who will hold roughly 12% of Sainsbury's equity on completion of the deal, with a vote to come in the coming month.Sainsbury's chairman David Tyler said the acquisition will be carried out through a scheme of arrangement, which he said would help enable a speedy completion "which is in the interests of the customers, colleagues and shareholders of both businesses"."Our next steps are to focus jointly on ensuring we obtain the necessary regulatory clearances and that we are well prepared for the future integration of these two great retailers."His sales pitch to Home Retail shareholders was that the combined business "will offer a multi-product, multi-channel proposition, with fast delivery networks, which we believe will be very attractive to customers and which will create value to both sets of shareholders."With the offer representing a premium of 74% to the HRG share price on 4 January 2016, analysts at Shore Capital said this was a "substantial mark-up" and they were comfortable that Sainsbury's "has not moved into 'over-pay' territory".However, ShoreCap added: "Whilst this is so, we watch with some trepidation to see what the UK Competition & Markets Authority (CMA) makes of this proposed acquisition - Lord knows how their minds work on April Fool's Day."Sadly, in the real world that businesses have to operate in, rather than the parallel and largely unaccountable environment of the CMA, we harbour concerns that this deal could yet face timetable challenges from the regulator; we hope we are incorrect in this respect.