Sainsbury's wins 18 March Home Retail bid extension

Sainsbury’s has been given until 18 March to improve or call off its bid for Argos owner Home Retail Group, after Frankfurt-listed giant Steinhoff International gatecrashed the party.

The grocer sought an extension from the Takeover Panel for its “put up or shut up” deadline to be moved back almost a month from the evening of Tuesday 23 February, with South Africa-based furniture behemoth Steinhoff having apparently making a cash approach at 175p a share that put the FTSE 100 company's offer in the shade.

Steinhoff's bid deadline is also on 18 March.

Home Retail's directors have already recommended Sainsbury's offer of 55p plus 0.321 of its shares, which equated to 161p at the time of the offer and had risen to nearer 167p by the end of last week, but will be delighted at the prospect of a bid battle.

Sainsbury's management, whose finance director John Rogers recently claimed Argos was being bought for a real price of "around £250m" due to synergies and accounting wizardry, has decided to undertake more work on the deal rather than throwing in the towel or making an immediate counter bid.

At £5bn market cap the UK supermarket group is dwarfed by £14bn-plus Steinhoff, which owns around 450 UK furniture stores under the Bensons for Beds and Harveys brands as well as circa 50 Pep & Co clothing outlets, and is majority owned by Christo Wiese, the South African retail billionaire whose UK interests also include Iceland and New Look.

But one of Home Retail's institutional shareholders told the Sunday Times they were sceptical about the Steinhoff offer due to "doubts the quality of South African cash”, calling for them to begin buying shares at that price to show they are "serious".

Analysts said playing for time was a sensible move by Sainsbury's.

"We expected and so understand Sainsbury's motives for undertaking more work, noting as we do the group's clear expression that it will not overpay for Argos," said Clive Black at Shore Capital.

"Maybe extra synergies will be identified to justify a higher offer or perhaps the underlying prospects for Argos will be upwardly re-appraised on the same basis? At the same time Steinhoff may be required to reveal its hand a little more as to the financial justification of the deal to its shareholders, which may not be unhelpful."

After flying from 154p to above 173p on Monday, shares in Home Retail were moderately lower on Tuesday morning, with Sainsbury's down a further 1.1% to 252.3p as they extended declines from the day before.