Why Sainsbury’s wants to elevate its relationship with Argos

Sainsbury’s, which has shown greater resilience to the price-war hammering the wider grocery sector, said it was considering its position.

Well, not exactly. It’s just got 41 per cent more expensive, now J Sainsbury has finally been outed as a potential buyer of the catalogue retailer’s owner, Home Retail Group, sending the shares rocketing to 139p.

The supermarket will have to be quick though, because thanks to British takeover rules, they’ve only got until February 2nd if they’re going solidify their intention to make another offer, or they have to leave the deal.

The supermarket group said it was contemplating the tie-up to boost its presence in the burgeoning home delivery market. Sainsbury sold the Homebase chain in 2000.

Keith Bowman, analyst at Hargreaves Lansdown Stockbrokers, said: ‘Early share price reaction from a Sainsbury perspective points to investor caution.

Sainsbury’s statement made no mention of Homebase, the do- it-yourself chain which it jointly founded in 1979 and later sold. “Sainsbury’s approach serves as a reminder of the weakness of United Kingdom food retailers and the desperation embedded in their strategic thinking”, Tony Shiret, an analyst at Haitong Securities, said in a note to Bloomberg.

“After any initial scale benefits would the combined non-food business be in better shape to compete?”

Sainsbury’s has come over counter-intuitive, courageous or plain foolhardy with its takeover approach for Argos owning Home Retail Group (HRG).

Discussions are being held with all staff at the store about the potential to find alternative roles at Argos and neighbouring Homebase stores in the region.

A year ago was a wretched one for Home Retail with share price declines of 50% as the company struggled in its fight with on-line retailers like Amazon, as well as the much slicker operation that is John Lewis.

Sainsbury’s said that the board thought that the amalgamation of two groups “is an appealing suggestion for the clients and shareholders of both organizations, building up a stage for long haul esteem creation”. The company has more than 800 stores and annual sales of about 1.7 billion pounds.

Private equity firms and their bankers working up ways of buying Home Retail and breaking it up have an easy job on their hands now they know Sainsbury’s Mike Coupe is hot-to-trot for Argos.

The real prize for Sainsbury’s here will be the vast high street store estate Argos has – many of which could be converted into its convenience formats.