Sainsbury’s boss Mike Coupe has refused to reveal if it will table a formal bid for Home Retail but said it remains a “compelling transaction”.
The supermarket giant revealed a 0.4% dip in like-for-like sales during its third quarter, alongside a 22-page presentation that detailed the benefits of a potential takeover of the Argos and Homebase owner.
After revealing last week that Sainsbury’s had a bid approach rebuffed by Home Retail Group last November, Coupe said that the deal would create a non-food business worth around £6bn that would be “on the scale of John Lewis or Amazon.”
However he said the play for Home Retail Group was not designed to take on the US etail titan, but to reflect changing shopper habits.
Coupe said Sainsbury’s wants to be there for customers “whenever and wherever they want” and a deal for Home Retail Group would allow the grocer to “accelerate” that strategy.
Coupe added that the potential deal would allow the businesses to “optimise space” with a combined portfolio of 2,000 stores. He said around half or Argos’s 734 stores have leases expiring within the next five years and admitted some of those could be shuttered if a deal were to go ahead.
However he insisted that overall there would be “more Argos locations than currently exist” because it would open more concessions inside Sainsbury’s larger supermarkets. The two businesses have already been piloting shop-in-shops at 10 of Sainsbury’s big box stores.
“We believe the opportunity is there to actually extend the reach of the Argos brand by putting it into a large number of our stores”
Mike Coupe, Sainsbury’s
Coupe said: “The coming together of the two organisations would allow us to optimise space quickly. We know that over half of Argos stores have leases with less than five years to run and we believe the opportunity is there to bring some of those stores into our existing real estate and to actually extend the reach of the Argos brand by putting it into a large number of our stores.
“We would also be able to put click-and-collect in the vast majority of our shops, not just our big shops, but our convenience stores. Customers in Sainsbury’s would have access to a wider range of general merchandise products and for Argos customers they would have access to Sainsbury’s products, parking and longer opening hours.”
He added: “We haven’t characterised this as taking on Amazon. This is driven by the way our customers are changing their behaviour. Customers expect us, and business like us, to fulfil their needs across a wide range of products quickly and through both physical retail space and the online channels.
“It happens that Amazon do some of this, they certainly don’t do all of it and equally companies like John Lewis have talked very openly about their strategies being, in some respects, similar to ours.
“We would argue that this would give us a unique business, certainly in the UK, and would do things that Amazon can’t do – for instance 2,000 shops – and indeed the points of presence can’t be replicated by people like John Lewis.”
Coupe said that any potential offer would also be in the form of cash and shares but declined to comment on whether a bid would be forthcoming ahead of the February 2 deadline.
“A business like ours will be constantly looking at opportunities for acquisition, small, large, or medium”
Mike Coupe, Sainsbury’s
He said feedback on the potential deal from Sainsbury’s shareholders had been “balanced” and warned it would not be held to ransom over its valuation of Home Retail Group, even hinting that Sainsbury’s could turn its attentions elsewhere as it seeks to expand the business.
“A business like ours will be constantly looking at opportunities for acquisition, small, large, or medium,” Coupe said.
“This is one in particular where we think there are core expertise expertise, particularly around the home delivery proposition and digital expertise. But it’s a transaction that is not at any price.
“We have a view on what we can afford to pay, what makes sense from a financial point of view and what makes sense for our shareholders. If it doesn’t go through then clearly we will continue to look elsewhere in the market – as you would expect a business like ours to do – at other opportunities.”