Sainsbury’s set to raise bid as Argos takeover deadline approaches

Investors expect Sainsbury’s to offer as much as £1.5bn for Argos on Friday, as the supermarket considers trumping a rival South African bid for the catalogue shop ahead of a 5pm deadline, reports The Guardian.

Sainsbury’s and Steinhoff International have been set a timescale by the takeover panel to announce a firm intention to bid for Home Retail Group, the parent of Argos, or walk away.

The panel clarified on Thursday that if one party revealed a firm intention to make an offer for Home Retail, then the other side would have 53 days to respond. City bankers were divided over whether there was an advantage or disadvantage in moving first in the highly unusual stand off in which both bidders are on the same timetable. If neither side is ready, Home Retail could potentially ask the panel for an extension.

Both sides have spent several weeks looking over Home Retail’s books and discussing their potential bids with the Argos owner’s board. At present Steinhoff, which already owns Bensons for Beds, and Harveys in the UK, has the most attractive offer on the table with a cash bid of £1.42bn, or 175p a share.

But Sainsbury’s cash and shares offer is currently worth only slightly less – 173p a share – as its share price has risen more than 10% since Steinhoff first announced its rival offer for Home Retail last month.

The supermarket this week bumped up its share price with the revelation of its first quarter of sales growth in more than two years. Home Retail’s share price has risen to 181p, valuing the company at £1.47bn, as investors bet that Sainsbury’s will up its bid to at least that level.

Richard Clarke, an analyst at Bernstein Research, said Sainsbury’s was likely to put forward a new bid at around 185p a share – valuing Home Retail at just over £1.5bn. The supermarket’s fire power has been improved by the performance of its own shares and by Home Retail’s revelation last week that it had generated £100m more cash reserves than expected in the past year.

Sainsbury’s sees the acquisition of Argos as a way to accelerate its attempts to tap into the fast growing online market. But the company has made clear that it is determined not to over pay for Argos and is under pressure from major shareholders not to splash out too much.

Revealing Sainsbury’s latest financial results on Tuesday, chief executive Mike Coupe said Argos was not a “must do deal”. He added: “There’s a price and we won’t go beyond that. We’ll maintain a level of financial discipline … There is no reason why Sainsbury’s won’t be a successful company in future without the Argos transaction taking place.”

Clarke said both sides would be seeking a recommendation from Home Retail’s board, although Sainsbury’s has made clear that it is willing to make a hostile bidif it cannot get agreement. “Things could get more acrimonious,” Clarke said. “It will be about who blinks first.”

One banker with long experience of takeover negotiations said that Steinhoff was unlikely to be the first to make a move as its bid was already the higher offer.

“Home Retail’s board is likely to favour a cash offer and if it announces an agreed deal with Steinhoff I think it would be very difficult for Sainsbury’s to come back,” he said. “If Sainsbury’s gets an agreed deal I think Steinhoff could counter. If I was Steinhoff I would not put my price up and wait and see what happens.”

But Steinhoff, which has an international retail empire, is currently working on a number of other deals. Some analysts believe Steinhoff may lose interest in Home Retail if the price gets too high as it also currently bidding for electrical goods retailer Darty in France and is also rumoured to be looking at Australian electronics chain The Good Guys.

It is also backing the expansion of Pep & Co, a new budget clothing chain being developed by Andy Bond, the former boss of UK supermarket chain Asda.