LONDON—U.K. retailer J Sainsbury PLC said Tuesday it made an unsuccessful cash-and-stock offer in November for Home Retail Group PLC, parent of Argos and former Sainsbury unit Homebase.
Sainsbury, the No. 2 U.K. supermarket chain by market share after Tesco PLC, said Home Retail rejected the approach and no further approach or formal offer is certain. Sainsbury didn’t disclose the value of its November offer. Home Retail Group had a market capitalization of £802.9 million ($1.18 billion) as of Monday’s close.
Home Retail said in a statement that its board rejected the offer because it undervalued the company and its long-term prospects, without disclosing the value of the proposed deal.
The British grocer said a combination of the two companies would create a broad-ranging retailer that could make use of both companies’ existing retail space and sell products to each other’s customers. Sainsbury also said there would be benefits to bringing together the two group’s online shopping and home-delivery capabilities. It highlighted that the two were already working together in an experimental placement of Argos space in some Sainsbury stores.
Want to publish your own articles on DistilINFO Publications?
Send us an email, we will get in touch with you.
A merged Sainsbury-Home Retail Group would have an expansive retail footprint across the U.K. Sainsbury operates more than 1,200 shops across the country, ranging from small convenience outlets to out-of-town superstores. Argos, which sells items such as electronics, toys and furniture, and home-improvement chain Homebase have 740 and 340 stores, respectively, according to the company websites.
Still, a tie-up might lead to the closure of some of those stores. Sainsbury said a deal would provide “additional cost-synergy potential through property rationalization, scale benefits and operational efficiencies.”
A deal also would bring Homebase back into the hands of Sainsbury, which along with a Belgian retailer co-founded what was then known as Sainsbury’s Homebase in 1979. Sainsbury sold the Homebase chain in 2000 to a venture capital group.
The approach comes at a tumultuous time for the U.K.’s grocery industry, which has struggled to adapt to changing customer habits, largely because of heavy competition from discount grocers such as Aldi and Lidl. Sainsbury said in November that its half-year profit, at £375 million, was 18% lower than a year earlier.
Home Retail shares, which were already moving up Tuesday morning, soared after Sainsbury’s midday announcement. They were up 41% to 139 pence in London trading. Home Retail had traded above 200 pence less than a year ago but has declined sharply as the company’s stores have struggled in the tough U.K. retail environment.
Sainsbury shares were down 5% to 242 pence Tuesday afternoon.
Under U.K. takeover rules, Sainsbury has until 5 p.m. GMT Feb. 2 to make a firm offer for Home Retail or walk away.
Corrections & Amplifications
J Sainsbury PLC is the No. 2 U.K. supermarket chain by market share after Tesco PLC. An earlier version of this article incorrectly said it was No. 3 after Tesco and Wal-Mart Stores Inc. ’s Asda. (Jan. 5, 2016)
Date: January 5, 2016