In a deal valuing Home Retail Group (HRG) at £1.3bn, Sainsbury’s now looks set to takeover Argos; upon successful completion of due diligence, regulatory approval, and agreement on other terms, the board of HRG is recommending the key financial terms of the proposed deal to its shareholders.
The Argos delivery network is an obviously important part of the deal, as referred to in a statement issued by HRG: “Specifically, the combination of Home Retail Group and Sainsbury’s will … Bring together multi-channel capabilities including digital, store and delivery networks to provide fast, flexible and reliable product fulfilment to store or to home across a wide range of food and non-food products…”
The statement also said: “The combination of Sainsbury’s and Home Retail Group is an attractive proposition for the customers and shareholders of both companies, establishing a platform for long-term value creation. 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, multi-channel proposition.”
Sainsbury’s has said it believes there could be around £120m of synergies, from which savings and efficiencies can be made over a three year period, following completion of the deal. These include duplication of centralised functions, and duplication in product ranges currently sold by Argos and Sainsbury’s. But the biggest source of these synergies will be the Argos store estate – closing some, relocating others – growing the existing Argos-in-Sainsbury’s concession presence and expanding its click-and-collect offer, which will cut costs and boost revenues.
Some retail analysts have speculated that as many as 245 Argos stores will close following a takeover by Sainsbury’s, and have commented that many Argos stores have leases that are due to expire within just a few years.
The Possible Offer, to use the correct technical term to describe the current status of the proposed takeover, will create a significant food and non-food retail operator, with a sophisticated delivery and operations network. In the non-food category, no other major UK retailer is able to offer same-day delivery like the Argos FastTrack service.
When it was launched nationwide, Argos Store’s central operations director Andy Brown – speaking at the eDelivery Conference last year, said FastTrack was a move to attract new customers into Argos. Over the recent Christmas period FastTrack was certainly a big hit with shoppers. In a trading statement issued in mid-January, HRG’s chief executive John Walden, said: “FastTrack, together with our now-proven store concession model and improvements in digital channels, drove increases in digital sales, digital participation and home delivery.”
Although there are still potential barriers to the success of the Possible Deal, including some of Sainsbury’s larger shareholders getting behind the deal and the successful sale of Homebase to Wesfarmers, it now looks likely that the biggest retail M&A story of the year (so far, at least) is set to go ahead, with delivery, operations, and multi channel capability playing a significant role.