Sainsbury’s faces a potential bidding war for Home Retail Group after the Argos owner said it had received a £1.42bn approach from South African retail group Steinhoff International.
Steinhoff, which owns Bensons for Beds and Harveys in the UK and Conforama in France and is part owned by New Look owner Christo Wiese, has made an approach about a possible offer for Home Retail Group worth 175p a share in cash – or about £111m more than Sainsbury’s £1.3bn offer.
The potential offer marks a near 8.5% premium to Sainsbury’s 161.3p a share cash and shares putative bid, which it tabled earlier this month. Steinhoff made its first approach to Home Retail only this week.
Sainsbury’s has been in the hunt for Argos for several months and is currently going through Home Retail’s books. It has until Tuesday to confirm whether it will make a firm offer under Takeover Panel rules.
In a statement to the City, Home Retail said: “The Board is reviewing the Steinhoff Proposal with its advisers and will make a further announcement in due course. Home Retail Group shareholders are advised to take no action at this time.”
David Jeary, an analyst at Canaccord Genuity, said: “In theory an all cash bid should hold sway but this is a bit like a gatecrasher arriving late to the party. Are they welcome or not? The Home Retail board will also have to consider if they think, because of the synergies Sainsbury’s can offer, if Argos will be more secure there.”
The bid for Home Retail marks the latest move into the UK by Wiese, the South African entrepreneur who already owns fashion chain New Look and a majority stake in grocery chain Iceland in the UK via his Brait investment vehicle. He is also backing former Asda boss Andy Bond’s Pep & Co cut-price fashion chain through Pepkor, which was acquired by Steinhoff late last year. Wiese now sits on the board of Steinhoff in which he owns a 17% stake, making him the largest shareholder.
The merger with Pepkor has given the group a foothold in 30 countries with 6,500 stores. The business includes furniture chains in Africa, Australia and France, Italy and Spain as well as cut price chain Pepco in Poland and Pep in Africa and Best&Less in Australia.
Steinhoff made clear it would not disrupt the disposal of Homebase, which Home Retail Group is in the process of selling to Australian retail group Wesfarmers, which plans to bring its Bunnings chain to the UK.
It is offering Home Retail shareholders 147.2p a share in cash or £1.2bn in total, subject to due diligence. Shareholders would also get a further £200m in cash from the sale of Homebase and a 2.8p a share payment in lieu of a final dividend, taking the total offer to £1.42bn.
Sainsbury’s has promised to pay Home Retail shareholders 55p in cash and 0.321 Sainsbury’s shares for each of their shares, valuing Home Retail at £1.1bn, subject to regulatory approval and a closer look at the Argos-owner’s books. Shareholders would get the same cash amount from Homebase and in lieu of the dividend, taking Sainsbury’s total offer to about £1.3bn.
Sainsbury’s declined to comment on Friday evening, but the supermarket company has told shareholders that it was determined not to overpay for Home Retail.
While chief executive Mike Coupe sees the acquisition as a way to cheaply fast track expansion into the rapidly growing world of online retail and take on the likes of Amazon and John Lewis, he was thought to be unwilling to pay any more than 170p a share.
The supermarket began stalking Home Retail in November last year and had several offers rejected before agreeing the 161.3p a share bid earlier this month.
The competing offer for Home Retail is a surprise to the market. Sainsbury’s ability to save costs, partly by putting dozens of Argos stores into spare space in its supermarkets, was regarded as giving it the ability to pay more than rivals could muster.
Steinhoff’s announcement was released after the stock exchange closed on Friday. Home Retail’s share price closed down 1.2% on the day at 153p.