Sainsbury’s and Home Retail Group (HRG) issued contrasting festive trading updates this week, the supermarket giant surprising the City on the upside while Argos-owning HRG disappointed.
But, frankly, who cares? The share price reactions suggest that financial markets see HRG as not too far off dead-retailer-walking, and the overriding point of interest is the price Sainsbury’s may have to pay to pull off its currently rebuffed takeover approach.
Making the would-be bidder’s life transparently easier was HRG’s announcement on Wednesday that it is in advanced talks to sell its other unloved business, the DIY Homebase chain, to Australian retail giant Wesfarmers.
Sainsbury’s is unlikely to want Homebase, and has in fact sold the HRG subsidiary once before many years ago. But unfolding events clearly all add up to the sense of HRG being a business in flux and in takeover play. In that brutal and more long-term context, Sainsbury’s better-than-expected 0.4 per cent drop in Christmas and New Year revenues is welcome as far as it goes, but cuts little ice with institutional investors, arbitrageurs and other market professionals.
Similarly, those interests have been perhaps understandably unperturbed by a profit warning from HRG as the group revealed yesterday that sales at Argos dropped 2.2 per cent in the 18 weeks to 2 January.
HRG’s shares shrugged off the profits alert, closing up about 2 per cent, while Sainsbury’s ended the session up nearly 1 per cent. Why get agitated about a company’s short-term performance and prospects for organic growth when inorganic prospects via a takeover look to be the only game in town?
Adding to the fin de siecle sense around Argos’s destiny, a handful of its concessions are already in Sainsbury’s stores (presumably as a trial run with the benefit of hindsight). And the supermarket group has revealed that if a bid is eventually successful it could close nearly half of Argos’s 700-plus standalone outlets.
It is possible HRG could still carve out an independent future, with the proceeds from a sale of Homebase. But Argos hasn’t made out an incontrovertible argument for such an outturn if Sainsbury’s ups the ante.