Sainsbury’s 'confident' £1.3bn bid will seal Argos deal as it edges closer to 'one-stop shop' status

Sainsbury’s has made a £1.3bn offer to buyout Argos which it is “confident” shareholders at both companies would back, taking the grocer one step closer to becoming what it hopes will be the "food and non-food retailer of choice".

The offer comes after Sainsbury’s revealed last month that it had made an unsuccessful play for the high-street chain in November.

Analysts have been anticipating a second bid following the sale of ailing DIY-chain Homebase – also in the Home Retail Group – to Wesfarmers for £340m.

A deal will be conditional on that sale going ahead.

Sainsbury's interest in acquiring Argos came on the back of a successful partnership the pair struck 12 moths ago. Argos opened 10 digital stores in Sainsbury’s supermarkets, giving the latter's customers access to over 20,000 non-grocery products in-store, which they could reserve via tablets for home delivery, or collection within 48 hours.

Sainsbury's said in a statement last month (5 January) that a merger of two of the UK's leading retail businesses would "create a food and non-food retailer of choice for customers" and be "an attractive proposition for the customers and shareholders of both companies, establishing a platform for long-term value creation".

If the offer is accepted, Sainsbury's will be able to tap into the Home Retail Group's online infrastructure. The company has invested heavily in turning Argos into a leading digital retailer which, in more recent attempts to compete with the likes of Amazon, saw it introduce a same-day home delivery service.

Amazon's hard push into the grocery market is expected this year, thus making it no surprise that Sainsbury's has been quick to highlight that a merger with Home Retail would give both "an enhanced supply and delivery network", as well as a stronger presence across food and grocery, clothing, plus other general merchandise.

However, Sainsbury's downplayed this during an investors call (13 January), saying that M&S and John Lewis would become its main non-food rivals.

Sainsbury's boss Mike Coupe said the combined entity would represent a £6bn non-food business - bigger than Amazon, John Lewis and M&S - and would "deliver revenue synergy potential through the ability to sell to each other's customers, including the operation of Argos concessions within Sainsbury's stores, and the sale of Sainsbury's products and services through Argos' network."

Speaking to The Drum following the revelation of the first bid, Pats McDonald, chief strategy officer at digital agency Isobar - which has built a leading division advising on e-commerce trends – said grocers are under pressure to find new ways to meet the needs of the on-demand generation.

"Given emerging trends in the retail sector, this feels like an interesting move. The boundaries between online and offline retail are being eroded and Argos' click and collect model is looking surprisingly prescient," she explained.

"New delivery models have raised consumer expectations and same day delivery is now the new normal. The rise of businesses such as Doddle and Pass my Parcel show the potential of a high street network in enabling businesses to meet those expectations."

Revealing the bid today (2 February), Sainsbury’s said it would expect to incur one-off costs of £140m across the first three years. It also said it expected £120m of annual savings by 2019, adding that was a "conservative" figure.

Sainsbury’s now has three weeks under takeover rules to make a firm offer by 17:00 on 23 February.

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