Sainsbury's Argos deal dashed as billionaire makes £1.4bn rival bid

With Steinhoff’s market cap of €18bn it looks  like Sainsbury’s has a fight on its hands

The South African billionaire behind the Iceland and New Look chains has entered the battle for Home Retail Group with an audacious £1.4bn counter-bid, putting pressure on Sainsbury’s to raise its offer for the Argos owner.

South Africa’s Steinhoff International Holdings, in which retail tycoon Christo Wiese is the largest shareholder, has tabled a 175p-a-share bid in cash, valuing Home Retail at £1.42bn.

Steinhoff owns Bensons for Beds and Harveys in the UK. Wiese’s investment vehicle Brait is the majority owner of the Iceland frozen foods chain, and the empire also includes clothing retailer New Look.

Steinhoff has around 90,000 employees and a retail presence in 30 countries. Its chief executive Markus Jooste has helped transform the business from a South African manufacturer into a major household-goods retailer in Europe, earning his company the nickname “Africa’s Ikea” by snapping up manufacturers and existing retail chains to sell furniture.

The bid comes just days before Sainsbury’s was due to finalise a 161.3p offer with a “put up or shut up deadline” set for 5pm on 23 February.

In a statement after European markets closed, Home Retail Group said: “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.”

Veteran retail analyst Nick Bubb said: “With a market cap of about €18bn we must assume they [Steinhoff] have the resources to fund the deal and with the Conforama chain in Europe and Harveys and Bensons in the UK there are plenty of synergies for them from owning Argos, so it looks like Sainsbury has a fight on its hands.”

Neil Saunders, managing director of retail analyst Conlumino added: “This is certainly a surprise development and it is incredibly bad news for Sainsbury’s. The winners, of course, are HRG shareholders as this increases the value they will get from any deal.”

Sainsbury’s tabled its cash-and-share bid for Home Retail offering shareholders 55p in cash and 0.321 Sainsbury’s shares earlier this month.

Together with cash returned from the disposal of Homebase the takeover valued Home Retail at 161.3p per share, or £1.3bn. 

The supermarket giant initially approached the Argos-owner in secret before Christmas but was forced to issue a statement in early January after shares started to rise when the rumour of a deal spread.

Chief executive Mike Coupe has touted the benefits of a tie-up.  He said the deal would aid shoppers, adding that the two teams could “bake a bigger cake and do a better job for our customers than we can do as separate businesses”.

Despite his optimism, markets and some analysts have been sceptical about the takeover. 

Sainsbury’s is currently the most shorted share on the FTSE 100 by hedge funds, with about 17 per cent of its stock out on loan at the latest count last month. 

The Canada Pension Plan Investment Board, a long term investor which rarely bets on share price falls, mounted a near-£50m raid on Sainsbury’s shares in the hope they would fall.

The unravelling of Sainsbury’s offer following the Steinhoff offer could lead to a windfall for short-sellers if shares decline.