Home Retail Group’s third largest shareholder, Old Mutual, has backed the £1.3bn takeover bid from supermarket giant Sainsbury’s.

The firm has performed a U-turn by issuing its support for the deal, despite previously calling for a higher price per share.

Old Mutual said it now regarded the possible offer – the terms of which were agreed on Tuesday – to be “fair, taking into account the acceleration of the Argos transformation plan within Sainsbury’s.”

While some standalone Argos stores are likely to be closed should the acquisition go ahead, Sainsbury’s boss Mike Coupe has insisted the number of Argos “touch points” would increase, as the supermarket giant rolls out concessions and click-and-collect stations across both its larger sheds and convenience stores.

Richard Buxton, manager of the fund that owns 3.6% of Home Retail Group, said in January that the firm would demand an offer of around 200p per share for the deal to go ahead. He said that price would reflect the “hard work and investment that has been made in the Argos transformation programme and its potential growth”.

But the fund has now thrown his weight behind Sainsbury’s possible £1.3bn offer, which values Home Retail’s shares at 161.3p each.

It said: “The agreed terms are below the 200 pence per share level which appeared in remarks to the media by Old Mutual Global Investors after the initial approach by Sainsbury’s.

“Since that time there has been the agreed disposal of Homebase by Home Retail, its update on Christmas trading and more detail on the opportunities for Home Retail within the Sainsbury’s group.

“Following discussions with representatives of both parties, we have concluded that the terms of the agreed offer are fair, reflective of the future potential of the Argos business and the risk still associated with the transformation plan.”

Sainsbury’s boss Coupe is gunning for John Lewis and Amazon in his attempts to acquire Home Retail, which has already agreed a £340m deal to sell Homebase to Wesfarmers.

Coupe said the combined business would boast 2,000 stores, 100,000 non-food products and a “world-leading” distribution network, which would allow it to go toe-to-toe with the biggest players in the market.