South African retailer Steinhoff, which sells furniture in the UK through Harveys and Bensons, has made a bid around 10% higher than that of Sainsbury's for the acquisition of the Home Retail Group.
According to the Financial Times, the bid came late last Friday, just days before the Sainsbury's firm offer would have been made on 23rd February. Steinhoff values the group at £1.4b, around 10% higher than Sainsbury's offer of £1.35b.
Shares in the group jumped today as a potential bidding war began. Sainsbury's' request for an extension to 18th March to make a firm bid has been granted.
John Colley, of Warwick Business School, comments: "The news that Steinhoff International has offered £1.4b for Argos must come as a relief to Sainsbury's shareholders, unless of course Sainsbury's now increases its bid. Sainsbury's would have been buying a large struggling bricks-and-mortar estate on the basis of cross-selling opportunities. Cross-selling rarely works, particularly when there are doubts regarding real overlap of customer base. Argos' competitors are primarily internet-based and do not have the burden of high-cost city centre leases.
"The UK grocery retail market has been particularly difficult these last few years with the growth of price discounters Aldi and Lidl. Sainsbury's positioning towards the upper end of the market has meant they have performed better than their immediate competitors. However, this does not mean they can simultaneously run a troubled business such as Argos, and extract complex cross-selling benefits. It is likely the grocery market will remain competitive for some years and Sainsbury's will do well to stay ahead in that battle.
"The price tag, mainly cash from Steinhoff, is an entry price to the UK retail market although Steinhoff is a significant supplier of beds in the UK. The acquisition of Argos would be a bet on an increase in UK house moves as homeware, soft furnishings and furniture sales follow some six months to a year later."