Sainsbury's tipped to buy Texas

Click to follow
The Independent Online
Ladbroke, the betting and hotels group, put its Texas Homecare subsidiary up for sale last night in a move that could signal a radical shake-up in Britain's £9bn do-it-yourself market. Sainsbury's, which owns the Homebase chain of DIY stores, is t he hottip to buy Texas, which has 238 outlets in Britain.

Both sides declined to comment yesterday but it is understood that the Ladbroke board met yesterday afternoon and an announcement is expected on Monday. "It is the worst secret in town that talks have taken place," a City analyst said.

Ladbroke is thought to be looking for £250m for the chain, though analysts see this as a full price for a business that has had problems.

However, some analysts disputed whether the deal would involve all 238 Texas outlets. Tony MacNeary, a food retailing analyst at stockbrokers NatWest Securities, said: "I would seriously doubt that Sainsbury's is interested in buying the whole of Texas. There are perhaps 30 or 40 stores that might interest them."

If the deal does go through, it will bring Sainsbury's within touching distance of B&Q, part of the Kingfisher group, as the leading player in the DIY market. According to Verdict Research, B&Q is the market leader with a share of 15 per cent, followed by Texas with 9 per cent. and Do It All, the joint venture, between Boots and WH Smith, which has 5.1 per cent. Sainsbury's Homebase has a share of 3.6 per cent.

The deal does have some commercial logic. Most of Sainsbury's Homebase stores are in the South-east, whereas Texas is a national chain.

Sainsbury's is keen to expand its DIY interests as the rapid expansion of its main business - food superstores - is being curbed by planning restrictions.

Sainsbury's is succesful in the DIY market. Its 82 Homebase stores achieved profits of £24m last year on sales of £328m. Texas has limped along, making profits of just £7.8m on £691m turover last year and further profits of only £2m in the first six months of the current year.

Sainsbury's has established itself as an expert in logistics and distribution systems and could easily transfer these skills to an expanded DIY group. The once deal-shy retailer is also becoming more sympathetic to the idea of large acquisitions.

Until last year it had barely bought anything since the 1950s. Then it bid for William Low, the Scottish supermarket group, eventually bought by rival Tesco, and in November it paid £211m for a stake in Giant, an American food retailer.

Industry experts believe Sainsbury's could turn Texas around by focusing on quality rather than price, and introducing its own brand which has proved successful in the Homebase stores. Attention to quality of service is another area Sainsbury's could improve.

Texas has been a dismal performer over recent years, making only £2m profits on sales of more than £300m in its last six months of trading. City analysts think that even Sainsbury's best efforts would be unlikely to force profits up much beyond £30m. Oneanalyst was more scathing. "Texas is a pile of junk," he said.

Comments