There's a multi-million pound bidding war brewing on the High Street
Sainsbury's confirmed last week it had made a bid for Home Retail Group and late on Wednesday Home Retail Group announced in an emailed statement that it is in "advanced discussions" with Wesfarmers to sell Homebase for £340 million ($489.8 million), confirming a Sky News story.
That might explain why Home Retail Group knocked back Sainsbury's bid, believed to have been tabled last November.
Sainsbury's hasn't given up hope, however, saying this week in a presentation to investors that "combining the businesses would be strategically compelling and would create shareholder value." If Sainsbury's can convince Home Retail Group to merge there's speculation it could cost upwards of £1.6 billion ($2.3 billion).
Quite what Sainsbury's make of the Wesfarmers news is unclear as we're yet to see a statement from them. The supermarket seemed keener on Argos than Homebase, so we could well see a fresh bid for the slimmed down Home Retail Group after the Homebase sale is out of the way.
Independent retail analyst Nick Bubb says in an email sent Thursday:
It remains to be seen how that will affect Sainsbury's numbers on a bid, as the Argos concessions inside Homebase will have to go, but Sainsbury's [sic] are clearly interested only in Argos and they must be assuming that their own buying scale in furnishings etc. can replace Homebase's.
On Thursday Home Retail group put out its Christmas trading update for the 18 weeks to January 2, showing:
- Argos sales up 0.9%, but same-store sales (stripping out gains from opening new places) down 2.2%;
- Homebase sales down by 4%, while same-store sales up 5%. The slump is mainly down to store closures;
- Group profits for the year ending February set to be "around the bottom of the current range of market expectations of £92 million to £118 million."
Home Retail Group's management are clearly backing Wesfarmers in the takeover bun fight, with CEO John Walden saying in today's statement:
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.
Despite the disappointing profit forecast and unspectacular sales, Home Retail shares are up over 3% this morning thanks to the takeover and deal chatter.
