Sainsbury's shareholders disagree on HRG valuation

Sainsbury's is facing calls from its shareholders not to overpay for Home Retail Group as the clock ticks down on a deadline to make a fresh offer for the Argos owner.

A clutch of Home Retail’s top investors have called for Sainsbury’s to raise its offer to as much as 220p, which would imply a rough £1.7bn valuation for the toys and TV retailer.

Sainsbury’s board requires support from its own investors for a bid and has been touring the City to drum up support for the deal, which it believes will revolutionise its online services.

However, it is understood that efforts have been frustrated because the supermarket has not disclosed the level of synergies it expects to generate from the deal. As a result, shareholders and analysts have wildly different views on valuation, sources said.

Richard Marwood at Axa Investors, a shareholder in the supermarket, said he was concerned about some of the takeover prices that were being mooted in the City.

A takeover price over 200p has been scoffed at by sources on the basis that Home Retail’s shares were at 100p at the start of the year and have already soared by 45pc on the back of deal hopes. Takeover premiums are usually between 30pc and 40pc higher than a target’s share price before a bid.

Mr Marwood had been an investor in Home Retail Group prior to the bid but has already profited by selling the shares after Sainsbury’s confirmed the approach.

He told The Sunday Telegraph he has since reinvested, buying around 2m of shares, following Home Retail’s decision to sell Homebase to Wesfarmers last week for £340m, which Marwood said simplifies any potential deal with Sainsbury’s.

“The Homebase sale is helpful and removes that bit of execution risk. But Sainsbury’s shouldn’t pay too much and £2-a-share is not a sensible price for this business”, Mr Marwood said.

Richard Buxton of Old Mutual, Home Retail Group’s third largest shareholder, has previously said that a bid must “start with a two in front of it”.

Sainsbury’s has until 2 February to make a firm bid or walk away. However, it can always have this deadline extended if Home Retail Group’s board agrees to an extension.

Sources said that given shareholders in Home Retail have already publicly expressed annoyance about not being informed of talks with Sainsbury’s, the board would want to show that it wasn’t deliberately thwarting a deal that could create shareholder value.

The supermarket would want to accompany an extension notice with an agreed price, which would allow it to publish its synergy estimates, according to sources.

Source : Ashley Armstrong – Telegraph.co.uk
www.telegraph.co.uk/finance/newsbysector/retailandconsumer/12116583/Top-investors-warn-Sainsburys-not-to-overpay-in-Home-Retail-takeover-bid.html