J Sainsbury plc

J Sainsbury plc

Code: ML-ML00022-006 | Published: Mar-2016 | Pages: 26 | MarketLine
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Following a prolonged attempt, one of the UKs largest supermarket chains J Sainsbury has provisionally had a GBP1.3bn takeover of Home Retail Group accepted. This case study explores Sainsburys motivations in the acquisition, and what the potential benefits and pitfalls of the move could be.



Key Findings
- Analyzing the current state of the UK food retail market and exploring the rationale behind the deal for Sainsbury.
- Exploring Home Retails recent performance against market disruption and why the company would be receptive to an offer from Sainsburys.
- Evaluating the value of the merger with discussion of imminent market disruption to both companies and the impact it will have on the combined entity.

Reasons To Buy
Why does Sainsburys want to acquire Argos?
What impact would a combined Sainsburys and Argos have on the UK retail industry?

Table of Contents

Overview
Catalyst
Summary
Sainsbury wants to diversify its offering
Sainsburys is one of the UKs largest food retailers
The UK food retail market is becoming more competitive
Sainsburys has positioned itself well so far
Cutting costs in food while protecting strong brand
Convenience sector continues to grow
Strong online growth continues
Sainsburys is further expanding its non-food offering
Sainsburys is further expanding into financial services
Home Retail Group has struggled
HRGs portfolio has continually eroded
Homebase stagnating as HRG tries to reduce costs
Sainsburys was reluctant to take Homebase in a merger
Argos invested heavily in infrastructure
Digital transformation a qualified success
2016 may have seen Argos overextend itself
HRG acquisition is preparing for the future
Sainsburys will become one of the UKs biggest retailers
Both companies will benefit from diversification
Diversification gives edge against Sainsburys discounter rivals
Argos gets respite from online competition
Digital infrastructure improves customer convenience
Argos distribution network changes could be applied to grocery section
Opportunities for better use of space in Sainsburys stores
Argos leases are expiring soon, paving opportunity for rationalization
Multichannel strategy may give edge against Amazon
John Lewis offers hope for UK retail survival
Argos eBay deal will drive further footfall to Sainsburys stores
HRG distracts as amazon eyes food retail
Food retail remains highly competitive
Aldi monitoring other distribution channels
Amazon could disrupt both Argos and food retail
Morrisons deal could represent a serious challenge to incumbents
Sainsburys still has some room with Prime Pantry
Sainsburys ability to price cut diluted by takeover funding
HRG and Sainsburys target different demographics
Late Steinhoff offer may derail bid
Sainsburys prepared to make a hostile bid to takeover HRG
Sainsburys investors are already nervous about HRG bid
Conclusions
Deal seems initially absurd, but on closer inspection vital
Appendix
Definitions
Sources
Further Reading
Ask the analyst
About MarketLine
Disclaimer

List of Tables
Table 1: J Sainsbury plc, key financials,2011-2015 ($m)
Table 2: Home Retail Group, key financials,2011-2015 ($m)
Table 3: Big 4 and discounters expansion plans for 2015/2016

List of Figures
Figure 1: Market share of food retail players in the UK for the 12 weeks ending November 8, 2015
Figure 2: UK food retail market value 2010-2019 (2015 onwards forecast), $bn
Figure 3: Home Retail Group and its brand logos
Figure 4: UK online retail market value 2010-2019 (2015 onwards forecast), ($bn)
Figure 5: Sainsburys stores Argos concession concept art
Figure 6: Promotional material for Amazon Prime Pantry

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