Home Retail Group, which owns Argos and Homebase, has reported a 10 per cent dive in shares after rumours that Sainsbury’s was planning an acquisition of the group have stalled, while Sainsbury’s shares rose 2.7 per cent on Friday after the same news.
Sainsbury’s was given a deadline of 2 February to decide whether they would make a bid for the group, but with only days left to decide, it is understood talks have come to a halt because the two are struggling to agree on a price.
The Financial Times reported that while Home Retail is holding out for 170p a share, Sainsbury’s is unwilling to pay more than 150p a share for the group, valuing the company at £1.22bn.
Sainsbury's made an unsuccessful takeover bid valued at £1bn for Home Retail Group last November in an effort to "create a food and non-food retailer of choice for customers". The supermarket’s better than expected Christmas sales have put them in a strong position to re-bid for the group.
Sainsbury's said in a statement (5 January) that a merger of two of the UK's leading retail businesses would be "an attractive proposition for the customers and shareholders of both companies, establishing a platform for long-term value creation".
John Rogers, Sainsbury’s finance director, said the supermarket chain would walk away if it could not get a deal at the right price, adding: "We think this is a strategically compelling opportunity and if it is at the right price, financially compelling."
Home Retail’s negotiating position has been helped by a deal to sell Homebase to the Australian firm Wesfarmers, following speculation that Homebase could be sold off if a deal with Sainsbury’s were to go ahead. The rumour of a Homebase sell-off was sparked after the supermarket failed to mention the DIY division in its investor presentation on 13 January. Rogers said the issue of Homebase was "very sensitive".
David Jeary, retail analyst at Cannacord Genuity, released a note on Thursday saying that any bid for Home Retail after its sale of Homebase would be at a premium if it were more than 135p a share. "As long-term observers of Home Retail, we remain less convinced of the strategic logic and rationale of such a deal. However, just as beauty is in the eye of the beholder, value is in the eye of the bidder," he wrote.