Outlook: A touch of the old Wolfson in GUS's Argos bid

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The Independent Online
The spirit of Sir Isaac Wolfson seems to have been reborn in his nephew David, judging by the whirlwind of activity to have swept Great Universal Stores since he took the reigns a year and a half ago. On top of a series of inspired acquisitions in data processing now comes an opportunistic pounds 1.6bn bid for Argos.

GUS has struck just when Argos is at its most vulnerable. Its chief executive is incapacitated with a life-threatening disease and its share price has been hammered by a series of profit warnings. Its once successful formula of catalogue retailing has matured and Argos is under fierce competitive pressure in all three of its main product lines - in toys from Woolies, in jewellery from a revitalised Signet, and in electrical goods from Dixons.

Furthermore, its expansion into home shopping, though clearly the right long-term strategy, is going to take both time and money - and lots of them. Here, then in the present Lord Wolfson of Sunningdale is a touch of his uncle Sir Isaac's legendary ruthlessness. Hit them when they are down and hit them hard.

But there is also some of the old pirate's business vision too. GUS already has the home shopping infrastructure Argos wants to build. All Lord Wolfson needs to do is to take the Argos brand and feed it through his own systems - no need for the expensive duplication of warehousing, call centres and distribution that Argos is intent on building. Even Argos is hard pressed to disagree with the business logic of what's proposed.

The difficulty comes on price. GUS's 570p a share is 16.5 times forecast earnings for this year. There are eight British retailers trading on higher multiples than this, so even accepting that Argos is in something of a bind, that's not much of a bid premium.

All the same, the stock market may have overreacted by driving up the price to 630p. In the absence of a rival bid from, say, Kingfisher or one of the big Continental mail order companies, it seems unlikely GUS would be prepared to go so high or that Argos could justify such a valuation on its own. Lord Wolfson doesn't need to buy Argos, and he's stubborn enough to walk away from it.

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