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Sainsbury’s has its eye on acquiring Home Retail Group

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Sainsbury’s confirmed that it made a bid approach for Home Retail Group in November, but the retailer’s offer was rejected by the owner of Argos and the Homebase do-it-yourself chain.

Sainsbury’s said the offer was “an attractive proposition” for shareholders of both companies. However, Home Retail Group said that the bid “undervalued Home Retail Group and its long-term prospects”.

Disclosure of the offer sent Home Retail Group’s shares surging up 41%, while Sainsbury’s fell 5%.

Acquiring Home Retail would give Sainsbury’s an opportunity to diversify into other areas of the high street, boosting its presence in the non-food market.

Sainsbury’s said it was “considering its position”.

It has until 2 February to decide whether to make a formal offer, under UK takeover rules.

Home Retail’s Homebase chain was originally founded Sainsbury’s and Belgian retailer GB-Inno-BM in 1979 – as Sainsbury’s Homebase. But in 2000 Sainsbury’s sold the Homebase chain in a two-fold deal worth £969 million.

But it isn’t Homebase that Sainsbury’s has its eye on, but Argos. Argos’s online delivery network has had millions of pounds invested into it to rival Amazon’s same-day delivery service.

Having Argos’s online delivery network under its belt would help Sainsbury’s protect itself from Amazon’s move into groceries with its Pantry service.

Hargreaves Lansdown analyst Keith Bowman was quoted by the BBC as saying that the drop in Sainsbury’s shares following the disclosure suggests that investor are wary about the deal.

“Home Retail remains a company in transformation, with sales at Argos still yet to convince, whilst the combination of food and non-food, combined with a bank offering, to some degree, potentially reflects the still troubled Marks & Spencer,” he said.