Monday, 22 February 2016

Where next for Sainsbury's-Argos?

News of Steinhoff’s last minute counter-bid for Argos, from a company with a market capitalisation of €19bn vs. Sainsbury’s €6.2bn (£4.9bn), and taking into account Sainsbury’s top limit vs. Steinhoff’s opening bid, it is probable that Sainsbury’s will ask for, and receive, an extension of the bidding process to 18th March to consider their options.

However, given that they are at the limit of a cash & shares combination, it is unlikely that Sainsbury’s will enter, much less beat Steinhoff in a bidding war.

This means that Sainsbury’s NAMs need to factor in a period (until 18th March) of uncertainty and distraction. Barring accidents - some outside development by government or counter bidder - Steinhoff will be successful...

In practice the inevitability of a failure by Sainsbury's to diversify via Argos means either a re-focus on optimising the current operation ‘as is’ or a new search for further diversification opportunities. Making the best of the existing mix means growing at the expense of the other mults, sharpening its competitive edge, with the help of suppliers

NAMs need to drill down to the level of their Sainsbury’s categories in order to best position their offerings within the retailer’s competitive platform, whilst maintaining the harmony of their trading relationships with other mults.

Meanwhile, Argos NAMs need to prepare for a radically different approach to their major customer, under new ownership. This means, treating the 'new' Argos as a new customer, going back to basics and re-profiling the retailer within their customer portfolio....

Exploring how Steinhoff's other UK operations are managed might also help...

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