Supermarket Sainsbury’s has won its four-month battle to buy Argos owner Home Retail Group after agreeing a £1.4 billion deal and will set about revamping the general goods retailer.
Sainsbury’s said the move will create a “multi-product, multi-channel” business with around 2,000 stores, concessions and click-and-collect outlets.
Sainsbury’s chairman David Tyler said: “The combined business will offer a multi-product, multi-channel proposition, with fast delivery networks, which we believe will be very attractive to customers and which will create value to both sets of shareholders.”
Home Retail Group chairman John Coombe added: “Argos is both an icon of the British high street and also a leader in the digital transformation of UK retailing.
“We are pleased that Sainsbury’s has recognised our progress and our potential with its recommended acquisition of Home Retail Group.”
The deal will see Sainsbury’s pay 0.321 new shares and 55p per share in cash to buy Argos, and will see Home Retail Group shareholders hold 12% of the combined business.
The supermarket said the agreement should be completed in the third quarter of this year.
Sainsbury’s said it will roll out an existing agreement to locate Argos concessions in its supermarkets.
Up to 200 standalone Argos stores out of a portfolio of 845 may close as Sainsbury’s streamlines the business, according to reports.
Since he became chief executive of Home Retail Group in 2014, John Walden has worked to transform the catalogue retail chain into a cutting-edge digital shopping operation. Customers can now order from in-store tablet computers and can pick up products through its click-and-collect service.
Sainsbury’s said the enlarged group will provide a “combination of product range, location, speed and flexibility across food, clothing and general merchandise”.
The supermarket said it expects to save at least £160 million in the third full year after the deal is complete.
The deal comes as the supermarket sector remains locked in a price war, which has seen majors such as Sainsbury’s and Tesco battle to maintain market share against discounters Aldi and Lidl.
The grocery sector has seen prices fall for more than a year.
The industry sees the deal by Sainsbury’s chief executive Mr Coupe, who took over from its previous successful boss Justin King in July 2014, as a bold move in a sector that is struggling to regain its equilibrium.
Bernstein analyst Bruno Monteyne said: “From a business point of view, the concerns about ‘Argos being a troubled business set for sustained decline’ remain fully valid and that will remain a risk factor hanging over the Sainsbury’s shares in the coming years.”
Shares in the supermarket slipped 2% in morning trading.
Earlier this month South African rival Steinhoff abandoned its own £1.4 billion pursuit, leaving the ground clear for Sainsbury’s to negotiate with Home Retail Group on its own.
Home Retail Group sold its other remaining business, the DIY chain Homebase, to Australian conglomerate Wesfarmers for £340 million in February.