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Argos Owner Backs £1.4bn Sainsbury's Takeover

The board of Argos owner Home Retail Group has agreed to support a takeover by Sainsbury (Amsterdam: SJ6.AS - news) 's in a £1.4bn deal - raising the prospect of job losses if hundreds of Argos branches close.

It (Other OTC: ITGL - news) comes after the supermarket won a takeover battle with South Africa's Steinhoff, which withdrew from its attempt to buy the retailer two weeks ago.

The tie-up will create a £6bn non-food operation, putting the new business in the same league as John Lewis and Marks & Spencer (Other OTC: MAKSF - news) and also taking on Amazon.

But Sainsbury's has said it plans to relocate many Argos stores within under-occupied space in its supermarkets, threatening the closure of up to 200 sites.

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Argos currently has 845 stores and employs 30,000 people. It notched up sales of more than £4bn for the year to the end of February.

Sainsbury's has not confirmed the number of sites that will close but says that after the takeover there will be more than 2,000 sites including concessions within and "click and collect" points as well as stores.

The deal is expected to deliver annual savings of £160m - likely to result in job cuts though details are yet to be confirmed.

The latest announcement said rolling out concessions within Sainsbury's stores would "increase the attractiveness of these locations".

Around 55% of these concessions will be relocated Argos stores, with half of these moving less than a mile.

The cash-and-shares takeover deal, when including a £200m pay-out to Home Retail Group shareholders, values the company at around £1.4bn.

It is conditional on approval by shareholders and regulators and is expected to complete in the third quarter of this year.

Sainsbury's said it was "making good progress" amid the ongoing supermarket price war against major rivals Tesco (Xetra: 852647 - news) , Asda and Morrisons.

Now (NYSE: DNOW - news) it wants to accelerate its efforts to cash in on the high level of customer visits to its stores "to compete across a broad range of products and services, beyond its food heritage".

Sainsbury's chairman David Tyler said: "The combined business will offer a multiproduct, multi-channel proposition, with fast delivery networks, which we believe will be very attractive to customers and which will create value to both sets of shareholders."

The deal comes after Home Retail Group agreed to sell its DIY business, Homebase, to Australian firm Wesfarmers (Other OTC: WFAFF - news) fo £340m.