Sainsbury’s has had an offer of £1.2bn accepted for the Home Retail Group. The supermarket chain believes that the deal will make it a world leader in retail. The agreement marks the end of a four-month battle to Argos. The deal came after Steinhoff. Its South African for Argos withdrew its £1.4 bn bid for Argos. Steinhoff announced that it had offered £673m for Darty, Europe’s third biggest electrical goods retailer.

The leading supermarkets like Tesco and Sainsbury’s have been desperate to fill excess space in their larger branches after a “space race” in the 1990s and 2000s left many grocers with superstores in out-of-town locations when shoppers were turning to convenience stores in town centres instead.

In an attempt to attract shoppers to its out of town stores, Sainsbury’s have introduced concessions for the photography specialist Jessops and the shoe repairs and key-cutting chain Timpson. Tesco and Asda have also installed extra services, such as pharmacies and dry cleaners.

Sainsbury’s believes that the deal will offer synergies at a time of intense competitive pressure and will generate £160m in cost savings.

The shareholders of the Home Retail Group will be eligible for a 27.8p conditional special dividend. This payment is dependent upon when the offer becomes unconditional. This payment will lift the value of the business to £1.4 billion.
David Tyler, the Sainsbury’s chairman said: “The UK grocery retail industry is undergoing a period of intense change in customer shopping behaviour and in the competitive environment. [The acquisition of] ……HRG presents an opportunity to accelerate our strategy, delivering compelling revenue and cost synergies. We will create a multi-product, multi-channel proposition with fast delivery networks that we believe will be very attractive to the customers of both businesses.”

Mr. Coupe said: “Our customers want us to offer more choice – and for that choice to be faster than ever, driven by the rise of mobile phone and digital technology. It [the takeover] will enhance both businesses. We are baking a bigger cake than either company can bake by themselves.”

It is believed that half the synergies anticipated will come from relocating Argos stores into Sainsbury’s supermarkets as concessions, as well as launching new Argos concessions and expanding Sainsbury’s click and collect service.
The integration of Argos stores into Sainsbury’s is likely to mean that between 150 and 200 Argos stores could be closed. Sainsbury’s has been reluctant to confirm how many stores will close as a result of the purchase.

When it launched its initial offer for Argos, Sainsbury’s said the deal would allow it to create a “world-leading” retail bigger than rivals John Lewis or Amazon UK.

The Sainsbury’s chief executive, Mike Coupe believes that Sainsbury’s will be buying Argos for £250m because it would inherit a £600m loan book of money owed by customers, along with about £200m from the sale of Home Retail’s Homebase outlets and £250m in cash in Home Retail’s bank account.