Sainsbury's reaches £1.3bn deal to buy Argos

Argos stores are set to be absorbed into Sainsbury's supermarkets as concessions

Clare Hutchison
Tuesday 02 February 2016 09:29 GMT
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The agreement comes after Home Retail Group revealed last month that it had rejected an undisclosed initial approach by Sainsbury's
The agreement comes after Home Retail Group revealed last month that it had rejected an undisclosed initial approach by Sainsbury's

Sainsbury's has reached an agreement on an offer to buy Argos for at £1.3 billion.

The agreement comes after Home Retail Group revealed last month that it had rejected an undisclosed initial approach by Sainsbury's.

Argos stores are set to be absorbed into Sainsbury's supermarkets as concessions, where Sainsbury's hopes the combined stores will mean they sell products to each other's customers.

Not everyone is convinced. Richard Perks, retail analyst, told the BBC that that Argos lacks the displays and service to match Sainsbury's.

“It doesn't have the service and display and I do not see that changing by getting into bed with Sainsbury's. The Argos [business] model is still flawed," Perks said.

The cash and shares deal is worth about 161.3p per Home Retail Group share, ammounting to a 63 per cent premium to Home Retail Group shares' closing price on January 4.

Should the deal be completed, Home Retail Group shareholders would hold approximately 12 per cent of the combined group.

They can also expect a £200 million pay out from the sale of Homebase to Australia's Wesfarmers and a 2.8p per share return in lieu of a final dividend for the financial year ending February 27.

Sainsbury's said the combination, which it predicts will deliver profitable sales growth and optimise the use of retail space, will be “earnings accretive” in the first full year after completion.

It also forecasts “EBITDA (earnings before interest, tax, depreciation and amortisation) synergies of not less than £120 million in the third full year after completion”.

Acheiving those synergies, however, is likely cost around £140 million over three years, it added.

The same amount will be spent on fitting out stores to reflect the new business.

Sainsbury's said it will finance the deal through existing debt arrangements and other resources.

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