Sainsbury's and Home Retail agree deal

Sainsbury’s and Home Retail have come to an agreement over the terms of a deal that values the FTSE 250 retailer at about £1.3bn.

Home Retail shareholders will receive 55p in cash and 0.321 Sainsbury’s shares for each of their Home shares.

They will also receive a payout of 25p per share to reflect the £200m capital return from the sale of Homebase and 2.8p in lieu of a final dividend in respect of the financial year ending 27 February.

Sainsbury’s said the combination of the two groups was “an attractive proposition for the customers and shareholders of both companies, establishing a platform for long-term value creation”.

“The combination is an opportunity to bring together two of the UK's leading retail businesses, with complementary product offers, focused on delivering quality products and services at fair prices, through an integrated, multi-channel proposition.”

Sainsbury’s, whose initial offer to Home Retail was rejected back in November for being too low, said the deal would be accretive to its earnings per share in the first full year following completion.

In addition, it expects the combination to generate core earnings synergies of no less than £120m in the third full year after completion.

“For Sainsbury’s holders, this is a leap of faith that this acquisition gives NewCo a real weapon to shift strategy and fight off future competitive threats,” said Olivetree Seurities.

“For HOME shareholders the question is whether around 161p reflects the present value of potential turn-around optionality. Post heavy shareholder discussions on both sides it seems that both sets of holders are satiated at this clearing price, thus it is hard to envisage complications. The question will more become whether NewCo shareholders really think this structure has the potential to re-rate the company in the future.”

At 0825 GMT, Sainsbury’s shares were up 0.2% to 245p while Home Retail was down 1.4% to 150.80p.