So the saga is over. British grocer J Sainsbury (SBRY) has finally agreed a full set of takeover terms with Argos owner Home Retail (HOME), which the latter will now recommended to shareholders. The terms of the deal remain unchanged from the offer Sainsbury's made a matter of weeks ago after South African retailer Steinhoff pulled out of the race.
Home Retail's shareholders will receive 0.321 Sainsbury shares and 55p per share held in cash, plus a 25p payment relating to the sale of Homebase to Australian buyer Wesfarmers earlier this year. They will also receive a final dividend worth 2.8p in relation to FY2016. However, the 'special dividend' referenced in the original offer won't be paid. On completion, Home Retail's shareholders will own around 12 per cent of Sainsbury's equity.
The agreed offer - taking into account add-ons and special payments - represents around 171.5p a share, a combined premium of 74 per cent to Home Retail's share price on 4 January 2016. That's a substantial premium, but analysts at Shore Capital said it's within their expected price range. That's left the broker feeling "comfortable" that Sainsbury's hasn't overpaid. Overall, the deal values Home Retail Group at £1.4bn.
Sainsbury's bosses expect the transaction to complete in the third quarter of 2016, although the deal is still subject to clearance from the Competition and Markets Authority. While analysts at Shore Capital are optimistic, they admit regulators do have the power to delay the expected timetable.
Regardless, an agreed set of terms that Home Retail will present to shareholders ends nearly five months of negotiations, since Sainsbury's first approached the Argos owner at the end of 2015. There's been plenty of speculation as to what Sainsbury's will aim to do with the Argos distribution network, as well as some of the retail property it will inherit through the deal. In short, Sainsbury is trying to strengthen its position in the online delivery market as US behemoth Amazon (US:AMZ) trials fresh food delivery in the UK.
