Sainsbury’s boss Mike Coupe believes the potential acquisition of Argos could drive more grocers to seek “alliances” with fellow retailers.
Coupe suggested that supermarket chains would need to consider “more imaginative solutions” to customer demands as shopping habits continue to change.
The Sainsbury’s chief executive was speaking after the grocer tabled a firm £1.4bn offer for Argos owner Home Retail Group, just 30 minutes prior to today’s 5pm ‘put up or shut up’ deadline.
Coupe said of the proposed deal: “It’s a recognition of, as we look forward, customers demanding more and more choice as far as any retail proposition is concerned.
“Part of the commentary… has started to propagate the idea that different forms of alliances, different combinations of business, will form over time.”
Mike Coupe, Sainsbury’s
“We use the words ‘whenever and wherever’ – we said that in our strategy in November 2014 and this is clearly a step on that journey.
“We have always held the view that multichannel clicks and bricks retailers will be the formats that win in the medium to long term.
“Part of the commentary over the last period of time, partly because of the acquisition we’ve been contemplating but also because of the Morrisons–Amazon combination, has started to propagate the idea that different forms of alliances, different combinations of business, will form over time.
“Who knows what the future holds, but I wouldn’t be surprised if you start to see more imaginative solutions to what our customers will want from us in the future.”
Coupe warned that the Argos deal was far from done, but said he was “pleased with this afternoon’s events.”
The path was left clear for Sainsbury’s to make an offer for Home Retail after rival bidder Steinhoff dramatically pulled out of the running, opting instead to pursue an acquisition of French electricals retailer Darty.
Sainsbury’s has offered 55p in cash and 0.321 Sainsbury’s shares for each Home Retail share - the same offer it had previously proposed - valuing Home Retail at £1.2bn.
But Home Retail Group shareholders are also expected to receive a special dividend of 27.8p per share, bringing the total value of the deal to 173.2p per share and £1.4bn in total.
Following due diligence, Sainsbury’s now expects “a higher level of EBITDA synergies of not less than £160m in the third full year after completion”. It had previously estimated synergies of not less than £120m.
Sainsbury’s finance boss John Rogers said the additional synergies had been created after increasing the number of Argos concessions that could likely be put into Sainsbury’s stores.
Coupe revealed that the average lease length of Argos’s stores is less than five years, but would not be drawn on how many could be shuttered when their leases expire.
Rogers maintained that Sainsbury’s could make greater operating cost savings than initially estimated on store rents and rates, while it could further increase cost savings within the combined central and support teams.
However, Coupe remained tight-lipped on whether roles and jobs could be lost.
He said: “We would be combining the two businesses and we would be looking for the best of both teams.
“I would anticipate that we would run Argos within the group as a standalone trading business.
“But it doesn’t take a genius to work out that you don’t need many of the central functions in two places. Therefore, you would expect that some of those functions would combine.
“In the overall scheme of things, this would be relatively limited and there is an opportunity to create more jobs rather than less jobs through a successful combined business – and that is particularly the case in stores.”