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GUS poised to win with new Argos offer

GREAT UNIVERSAL STORES increased the pressure on Argos yesterday when it raised its offer to 650p per share, valuing the catalogue retailer at pounds 1.9bn. Argos immediately rejected the increased bid as "totally inadequate". However, analysts said the extra cash - up from 570p - was likely to secure victory.

"They should succeed at this level," said John Richards at NatWest Securities. "Institutions will look at the retail sector which has been a bear market of its down recently and say `do I want cash now or go along with the Argos promises?' They will then remember all the other retailers who have failed to deliver."

Another analyst agreed, saying: "I think they've got it at 650p. But some institutions might take a longer term view - that Argos might be worth more in the long run."

Argos shares closed 2p higher at 639p, the first time they have been lower than GUS' offer price since the bid battle started. GUS shares lost a penny to 779p.

Lord Wolfson, GUS chairman, said Argos shareholders should accept the certainty of its cash offer rather than take "the risks of what might happen to the Argos share price if GUS' offer lapses."

He criticised the Argos defence, saying: "They [the board] weren't really serious. Their defence included some of the most imaginative pieces of accounting. I think it is going to win an Oscar."

He indicated that if GUS did succeed it was likely to keep Argos's operational management. "Operational management seems very competition. Where we disagree with Argos is at the board level," he said. He said the board had been suffering from "strategic constipation".

Of Stuart Rose, Argos's new chief executive, who has secured a lucrative contract, he said: "He would probably exercise his option to walk away with a large sum of money."

Lord Wolfson said Argos had run out of growth and that its strategy of adding new stores in the existing format was delivering lower returns. Argos's plan to increase sales had led to more stock in small stores, increasing the risk of running out of certain lines.

He said few, if any of Argos's 439 stores would close if GUS secured victory. But it would re-position some and upgrade the portfolio to offer a more desirable shopping environment. He said adding GUS's home shopping systems to the Argos stores would give customers more choice. GUS would also develop a database of Argos customer for use in more focused marketing.

GUS also moved to counter the view that it needs Argos to shore up its own mature British mail order business. It said UK mail order sales in the year to 31 March rose to pounds 1.7bn, from pounds 1.58bn. Agency sales, which make up the biggest part of the business, were 7.1 per cent up on the previous year. "Reports of its demise are rather exaggerated," the company said.

The GUS offer is final and closes on 24 April but could be increased if a "white knight" emerges at the 11th hour. But William Cullum, at Paribas, said: "The market is saying there isn't another bid to come. GUS has probably done enough to win."

GUS launched its bid at 570p in February. Since then Argos has recruited a new chief executive, named a new chairman and developed a new retail strategy. This involves increasing margins by 1 percentage point over two years, linking up with Littlewoods in a fashion mail order joint venture while modernising the Argos stores and catalogue.

Outlook, page 25