Sainsbury's 1.4 billion pound ($2 billion) bid for Argos now looks like an accidental poison pill.
A consortium involving the Qatar Investment Authority, which is Sainsbury's biggest shareholder, private equity group CVC and Canadian property giant Brookfield considered bidding for Sainsbury late last year, according to Sky News.
The group reportedly abandoned the plan shortly after Sainsbury's surprise approach for the struggling online and catalog business was revealed in January.
Some Sainsbury investors already had reservations about buying Argos, and the idea that the adventure may have cost them a juicy takeover premium will be galling. But while adding Argos does change the dynamics of a potential leveraged buyout of Sainsbury, it does not kill the logic entirely.
For starters, Argos is not such a big deal as to make Sainsbury too big to swallow.
Adjust for the cash going out from Sainsbury to Argos shareholders under the terms of the transaction, and the combination would have a market capitalization of about 6.1 billion pounds. Adding a standard 30 percent takeover premium would bump this up to 8 billion pounds.
Had any bidder made an approach in mid-December, it would have had to offer 6.7 billion pounds, on the same premium. That's not a massive gap to bridge for such financially strong buyers.
Moreover, QIA already has a big stake in Sainsbury, about 22 percent post-Argos. Exclude this, and the check to be written to buy the rest falls to 6.2 billion pounds.
Secondly, owning Argos may ultimately help add leverage. The net debt position of a Sainsbury/Argos combination is expected to broadly stay the same, at about 1.5 billion pounds. But the group gains some new sources of income to fund extra debt.
Sainsbury's Ebitda is running at about 1.2 billion pounds, Argos would bring about 80 million pounds. Plus there are the combination's savings and revenue gains forecast to hit 160 million pounds within three years.
Gearing up to, say, 2 times Ebitda would add about 1.4 billion pounds of extra debt capacity. That would both reduce the consortium's equity contribution and boost returns. The group could carve out a separate property subsidiary which would be the ideal vehicle for taking on the debt, thanks to its attractive collateral.
So a bid for Sainsbury-Argos is doable in theory.
There are two big snags, and the first is the timing. In the short term, Argos is going to be more costly than profitable: Sainsbury has warned of a near-term hit from 270 million pounds in integration costs and capital expenditure before the gains come through.
The second is the family. In 2007, the last time the grocer was the subject of private equity interest, the Sainsbury family was unwilling to see the company loaded with more debt. The company's pension obligations were also a stumbling block.
It looks like the scuppering of the consortium bid was accidental. Even if Sainsbury realized toward the end of 2015 that it needed a change of strategy to defend itself against continued pressure from aggressive discounters and tackle its languishing share price, it's hard to see that willingly making itself less attractive to the group of bidders was an intended consequence.
But it ratchets up pressure on Sainsbury Chief Executive Mike Coupe to deliver on his masterplan to turn Sainsbury into a non-food powerhouse to challenge Amazon's creep into Britain and John Lewis, and mop up excess space in Sainsbury's stores at the same time.
If Coupe had to make his bold Argos escapade work before, he really needs to now. His hurdle for success just got higher.
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