Following an intense weekend of negotiations, Sainsbury’s and Home Retail have reached an agreement on the financial terms of a takeover deal that values Argos at around £1.3bn.
The base offer indicates a £1.1bn valuation for the retailer, but Sainsbury’s is adding payments on top to compensate Home Retail investors for the final dividend they would have received without the deal, raising it to £1.3bn.
With Homebase out of the way Sainsbury’s acquisition of Argos would create a business with a bigger non-food category than that of John Lewis or Marks and Spencer, potentially attracting 25m customers a week.
The combined retail offer “plays into the way that consumers are changing”, CEO Mike Coupe said on a conference call on Tuesday morning.
According to Coupe, 40-45% of the UK’s population shop with Sainsbury’s and Argos. With the nimble delivery operations that Argos has to offer, the deal would “bring together multi-channel capabilities including digital, store and delivery networks”, Sainsbury’s said, creating “a food and non-food retailer of choice” for customers.
The combined group is targeting double-digit profit growth by the third year of the merger, when annual cost savings will be around £120m.
The merger will incur costs of £140m, to be spread out over three years, with a further £140m to be spent on refitting stores to accommodate Argos concessions and click-and-collect counters within Sainsbury’s supermarkets.