Home Retail acquisition hits the skids, report claims

Sainsbury's acquisition of Home Retail has stalled, according to the Financial Times.

A wide gap in the two sides' valuation of Home Retail shares was said to be the divisive issue.

Nonetheless, the FT cited sources who said talks were still ongoing and a break-through was still possible before the 1700 GMT cut-off point on 2 February.

Sainsbury has said it was not willing to stump up more than approximately 170p per share, one of the sources said.

On 24 January, The Sunday Telegraph filed a similar report, indicating that a clutch of top shareholders in Home Retail wanted about 220p for each of their shares -valuing the grocer at about 1.7bn.

Sainsbury´s management was said to have been "frustrated" in its efforts to drum up support from investors in the City because the supermarket chain had not disclosed just how much saving it expected to be able to extract from the deal.

One investor in the grocer pointed out to the Sunday Telegraph that stock in Sainsbury had already risen by 45% since speculation about aa tie-up first surfaced.

"The market is not privy to the level at which Sainsbury's rebuffed offer last November was pitched (although press speculation centres at around 130p). There have been three key events since then - the proposed sale of Homebase to Wesfarmers for £340m (c 42p per share); a further profit warning from Home Retail; and market weakness and volatility. These will all play a part in Sainsbury's thinking for what it views as both a "strategically compelling transaction" but also "not a must do deal".

"[...] This has certainly changed our initial scepticism on the probability of a higher, follow-up approach," Cannacord Genuity analyst David Jeary said in a research note sent to clients on 28 September.

As of 12:38GMT shares in the grocer were trading up by 3.13% to 244.1p and those of Home Retail were down by 4.56% to 136p.