Home Retail Group rumoured suitor Asda ‘not looking at bid’
Rumour surfaced in late-Jan during HRG/Sainsbury’s talks
Customer overlap with Argos diminishes Asda rationale
Asda’s non-food supply chain already world class – M&A advisors
An Asda bid for Home Retail Group [LON:HOME] “isn’t something we’re looking into,” a spokesperson for the Walmart [NYSE:WMT]-owned supermarket group told this news service.
Speculation of Asda gate-crashing J Sainsbury’s [LON:SBRY] move for Home Retail Group (HRG) was reported in late January. Sainsbury’s and HRG reached agreement on key financial terms of a possible cash-and-shares offer on 2 February.
A Sainsbury’s offer is likely to be conditional on HRG selling its Homebase unit to Wesfarmers [ASX:WES] and returning GBP 200m from the GBP 340m sale price to HRG shareholders. The parties have a 23 February put up-or-shut up deadline from the takeover panel for Sainsbury’s to make a formal offer, although this can be extended further.
The Homebase sale will leave HRG dominated by its Argos online-catalogue business. The attraction of Argos’ sales platform is a key factor behind Sainsbury’s interest, as reported.
Asda has been the only strategic player rumoured in media as a potential rival bidder to Sainsbury’s, along with private equity. Sector M&A advisors following the situation said there is less rationale for combining Asda with Argos than there is for a Sainsbury’s transaction.
A potential bid by Asda for HRG has been one of the oldest rumours in retail repeated over the last decade, a person familiar with HRG noted. One factor behind this is the deep pockets and financing ability of Asda parent Walmart, a sector lawyer said.
However, there is already significant demographic overlap between Asda’s customer base and Argos’, said a sector banker. This means Asda would gain little new ground customer-wise from a successful bid, he said.
Asda’s George non-food merchandise operation already has a world-class supply chain, meaning it would not gain as much from an acquisition of Argos as Sainsbury’s would, a second sector banker said. This indicates any rival bid by Asda for HRG would be done mainly to keep Sainsbury’s from encroaching on its non-food market, he suggested.
Sainsbury’s also has a number of advantages stemming from the acquisition that Asda may not be able to tap, said the sector lawyer, citing Sainsbury’s ability to finance the deal through its banking arm.
The cash component of the potential Sainsbury’s bid is set to be entirely refinanced through the proposed transfer of HRG’s Financial Services business to Sainsbury’s Bank. This will lower current Sainsbury’s Group leverage.
A spokesperson for HRG declined to comment. The Homebase capital return and the Sainsbury’s offer valued each HRG share at 161.3p on 2 February. HRG shares were trading up 1.34% at 150.9p in Monday (15 February) trading. Sainsbury’s shares were up 3.34% at 247.3p.