Sainsbury's has made an offer of £1.3b for Home Retail Group, after an offer made last year was rejected. The deal is expected to be dependent upon the sale of Homebase to Australian conglomerate Wesfamers for £340m.
According to Home Retail Group: "The combination of Sainsbury's and Home Retail Group is an attractive proposition for the customers and shareholders of both companies. The combination is an opportunity to bring together two of the UK's leading retail businesses, with complementary product offers, focused on delivering quality products and services at fair prices, through an integrated, multichannel proposition."
Sainsbury’s believes that the combination will generate EBITDA synergies of no less than £120m in the third full year after completion, further enhancing the attractiveness of the possible offer.
It also expects to incur costs of approximately £140m across the first three full years, plus the same again in store fit-out expenditure.
Today's offer deadline has now been extended to 23rd February, during which time due diligence would be carried out prior to the making of a firm offer.
John Colley, Professor of Practice at Warwick Business School, comments: "The strategic logic of Sainsbury's £1.b bid for Home Retail is not clear. It is a diversification into garden products, furniture, DIY, homeware, electrical goods and almost anything other than food retail.
"Home Retail itself is a conglomerate of unrelated businesses with Argos, Homebase and Habitat. Although, it seems the separate deal involving Homebase being sold off to Australian firm Wesfarmers has been included as a clause in this latest bid. Regardless of this, some of their problems may well emanate from a lack of benefits between their own businesses. Why do Sainsbury's management think they can manage these very different retail businesses? Previous diversifications beyond the core operations in retail have often proved ill considered."
