Sainsbury’s and Wesfarmers show keen interest to buy out Home Retail Group companies
By Staff Reporter
Jan 17, 2016 04:09 AM EST
Jan 17, 2016 04:09 AM EST
When Home Retail Group put itself out on the market, it evidently did not lack bidders despite the strong warning it sent out regarding low profits. The two names that made big news are the Australian conglomerate, Wesfarmers and the British supermarket giant, Sainsbury's.
As mentioned in Financial Times, Home Retail's CEO John Walden stated in no uncertain terms that the market should expect the company's full-year, pre-tax profit to lean more towards the bottom of the forecasted £92m-£118m range. This transparency had obviously sent its shares spiraling down.
However, things started looking up again after the UK group revealed in a statement that it was in negotiations with Wesfarmers, over the sale of its home improvement chain, Homebase. It looks like the offer price of £340 million ($489.8 million) has gone down well with its British owner, as Walden was quoted saying "The potential transaction would allow the Group to focus on Argos and its Transformation Plan, with an improved balance sheet and financial position, which I believe would represent an even greater opportunity for building long-term shareholder value," according to Business insider.
Although Sainsbury's had propositioned a merger with Home Retail which is in direct conflict with Wesfarmers' buyout offer, this does not necessarily throw UK's second-largest supermarket chain out of the game. The company's interest mainly lies in acquiring Home Retail's catalogue retailer, Argos, which is still a possibility. Another aspect that might tilt the scales in Sainsbury's favor is the break-up of Wesfarmers' offer price. It is believed that the shareholders are left with only £215, after a huge sum of £125 is set aside for restructuring, severance and deal costs along with pension scheme.
But how greatly this acquisition would benefit the British supermarket retailer is a different story altogether. There are some heavy indicators that point towards a loss in terms of property savings should Sainsbury's go ahead with its plans. Its CEO, Mike Coupe sounds pretty optimistic though when he stated that "Argos would accelerate Sainsbury's non-food, multi-channel strategy", as reported by The Guardian.
The selling company's numbers were no secret as it put out its Christmas updates at a recent presentation. Both Argos and Homebase's sales figures looked pretty sluggish despite the holiday season. Under such a circumstance, both the bidders need to work out a price that would justify the disadvantages of the acquisition.
All these market speculations have, nonetheless, done wonders for Home Retail's shares, which had jumped by 41% almost immediately upon Sainsbury's approach. Now the January reports show almost a 50% increase for 2016.
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