Sainsbury’s edges closer to buying Argos

Sainsbury’s made an offer of £1.3bn on Home Retail Group today and pending due diligence, as well as the finalising of the Homebase sale to Wesfarmers over the next week, the deal should go through. Sainsbury’s has shown an interest in Argos since it launched its Fast Track home delivery network last year, and even though the chain of homewares stores has not done amazingly in the last few months seems to believe that this will be a good move for the grocer.

There will be changes to job roles but there will be a net gain in employment for the new company, as some Argos stores are moved inside supermarkets and the delivery programme is rationalised. It has been suggested that the Argos system will now be used for existing non-food lines in Sainsbury’s and that duplication of lines will be reduced as the companies combine. In the rationalisation, it is expected that the two companies as a whole will make savings of around £120 million annually, though this is a conservative estimate.

Though gaining strength relative to its rival supermarkets, Sainsbury’s is experiencing a mature market and is not seeing the growth it once did in a saturated marketplace. The move to take over Argos means the company can compete directly with the likes of Amazon that sells similar lines, only with more emphasis on the grocery side of the e-commerce side. Amazon is said to be considering taking over online grocer Ocado and this could bring the two companies head to head in a price war. When two major players join forces then it can be a good time for customers, especially if their rivals feel threatened enough to get into price wars.

Shareholders of Home Retail Group were offered 0.321 shares and 55p cash per share they own. Home Retail Group shareholders will now possess 12% of the Sainsbury’s company.