- Retailer rejects potential offer from JD.com
- ‘Not in the best interests of shareholders’
- Analysts disagree on decision to keep Argos
Investors cheered the news supermarket chain Sainsbury’s (SBRY) had turned down an offer from Chinese internet retailer JD.com for its Argos catalogue business.
The shares jumped 15p or 5% to a new 12-month high of 322p, sending them to the top of the FTSE 100 leader board.
STICKING WITH IT
The UK’s second-largest grocer in terms of market share and market cap said it had ended discussions with JD.com after the Chinese firm communicated it would only be prepared to engage on a materially revised set of terms and commitments which were ‘not in the best interests of Sainsbury’s shareholders, colleagues and broader stakeholders’.
Argos is the UK's second largest general merchandise retailer, with the third most visited retail website in the UK and over 1,100 collection points.
Sainsbury's said it was committed to delivering ‘the strongest and most successful future for Argos customers and colleagues’, and its 'More Argos, more often' transformation strategy to grow the frequency of consumer visits and spend was delivering ‘good progress’.
The business has traded in line with expectations over the summer with higher sales and profitability against a strong period last year when sales were boosted by clearance activity.
Sainsbury’s also said its core grocery business had ‘good momentum’ and reiterated its targets for the year to March 2026 of around £1 billion of underlying operating profit and more than £500 million of retail free cash flow.
EXPERT VIEWS
Shore Capital analysts Clive Black and Darren Shirley said they weren’t surprised Sainsbury’s was open to exploring a disposal of Argus but argued the firm was ‘absolutely right’ to walk away from a deal which would have been suboptimal for stakeholders.
The analysts also flagged the fact shareholders are in line to receive a special dividend from the sale of the company’s banking operations, while the underlying grocery market remains ‘robust’ with the prospect of volume growth driving higher sales.
Jefferies’ analyst Frederick Wild had a different take, suggesting an Argos exit ‘would have been well received’ as it would have provided a greater focus on food, ‘in one stroke addressing a major investor concern over the cyclicality of earnings in an otherwise highly defensive space’.
‘Since Argos was purchased under the previous management team, it has injected a somewhat unwelcome degree of cyclicality into a business which has seen its food operations meaningfully improved by the current management team (and) has become a perennial focus of investor questions,’ added Wild.
