Photographer: Simon Dawson/Bloomberg

Home Retail Shares Jump as Company Becomes $2 Billion Prize

  • Steinhoff trumped Sainsbury bid for Argos owner late Friday
  • Analyst expects U.K. grocer to match offer as deadline looms

Home Retail Group Plc shares rose to a seven-month high after a takeover of the Argos stores owner turned into a 1.4 billion-pound ($2 billion) contest.

Steinhoff International Holdings Ltd., the owner of Conforama furniture stores in France and Bensons for Beds in the U.K., said late Friday it plans to make a 175 pence-a-share cash offer for the British retailer, topping a bid from supermarket chain J Sainsbury Plc.

Home Retail gained as much as 13 percent to 173.6 pence, the highest since July 3. The bid from Steinhoff -- which has rapidly shifted its focus from South Africa to Europe with a series of acquisitions -- came before Tuesday’s deadline for Sainsbury to make a formal proposal. The British grocer previously reached agreement on the terms of a cash-and-share offer worth about 167 pence a share.

“Steinhoff certainly looks like a serious bidder,” Bruno Monteyne, an analyst at Sanford C. Bernstein, said in a note. “Sainsbury’s might be keen to avoid a bidding war, but we would expect them to match the Steinhoff bid, and hope that the fact they are further down the line on due diligence will mean the board will accept their offer.”

No Response

Sainsbury has yet to formally respond to Steinhoff’s proposal. Analysts at Exane BNP Paribas said they expect the grocer to come back with a higher offer. The shares fell 1.6 percent to 256.9 pence in London.

Founded in Germany in 1964, Steinhoff listed in Johannesburg a year after the 1997 acquisition of a stake in a South African furniture company. A takeover of Home Retail would be Steinhoff’s biggest since it bought South African clothing retailer Pepkor Holdings Pty Ltd. for 62.8 billion rand ($4.1 billion) in 2014. Steinhoff is also restructuring South Africa’s JD Group Ltd., closing about 260 stores to stabilize the furniture retailer that it took full control of last year.

The bidders are now vying for control of a business that operates more than 800 Argos shops selling everything from jewelry to televisions. Home Retail would further increase Steinhoff’s presence in Europe, where it gets more than half its 135 billion rand of sales from operations in the U.K., France and Germany.

Amsterdam-based Steinhoff would generate about 120 million pounds of synergies by acquiring Argos, due to the overlap in products sold by the two companies and the potential to convert stores into its Bensons and Harveys formats, according to Exane analyst Simon Bowler. Sainsbury estimated that its proposed acquisition of Argos would lead to profit benefits of at least 120 million pounds in the third year after completion.

Steinhoff shares gained 4 percent in Frankfurt, boosting its market value to more than 18 billion euros ($20 billion).

The furniture retailer said its offer comprises 147.2 pence a share in cash, plus a 2.8 pence dividend and 25 pence to reflect Home Retail’s sale of the Homebase U.K. home-improvement chain to Australia’s Wesfarmers.

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