Sainsbury’s, the UK’s second largest supermarket, has made a formal £1.4 billion bid for Argos owner Home Retail Group (HRG) after South Africa’s Steinhoff International withdrew from the takeover battle.
The two companies (Sainsbury’s and Steinhoff) had until 1700 GMT to make a firm bid for Home Retail.
“Steinhoff now confirms that it does not intend to make an offer for Home Retail,” it said in a statement to the London Stock Exchange.
Sainsbury’s chairman David Tyler said: “The UK grocery retail industry is undergoing a period of intense change in customer shopping behaviour and in the competitive environment.
“This combination with HRG presents an opportunity to accelerate our strategy, delivering compelling revenue and cost synergies.
“We will create a multi-product, multi-channel proposition with fast delivery networks that we believe will be very attractive to the customers of both businesses.”
The acquisition of Argos is set to help Sainsbury’s speed up efforts to expand its presence in the fast growing online market.
Sainsbury’s said the merger would create “a leading food and non-food retailer of choice for customers, building on the strong heritage of both the Sainsbury’s and HRG businesses whose brands are renowned for trust, quality, value and customer service.”
Although Steinhoff didn’t make a formal bid, Markus Jooste, CEO of the company, said Home Retail was a “compelling business with unique attributes that remains attractive on many fronts”.
However, he added: “Having concluded our *due diligence review and ancillary discussions, we have evaluated our findings against our investment criteria and today come to a decision not to proceed.”
* Due diligence refers to checking the operational and financial status of the other party before moving forward with an acquisition, merger, contract, or any business arrangement.
At the same time, Steinhoff announced that it made a formal £673m ($975m) bid for Darty, Europe’s third biggest electrical goods retailer – topping a big from rival French retailer Fnac.
Video – What is takeover?
A takeover occurs when one firm gobbles up or acquires another; hence, we also call it an acquisition. When the two businesses are about the same size and get together to make one company, we call it a merger.