Get Set, Go Sainsbury’s

Tuesday, 2 February: Confirming the speculation reported yesterday, the Sainsbury’s takeover of Home Retail Group looks set to go ahead as the two parties agreed terms. The agreement values Home Retail at around £1.3bn and will create the country’s largest general merchandise retail business. The Homebase division of Home Retail has previously been sold to Australia’s Westfarmers, so in essence, the Sainsbury’s deal is for Argos alone. Home Retail shareholders are set to receive 55p in cash and 0.321 Sainsbury’s shares per Home Retail share, and will ultimately own about 12% of the combined group. To reflect the proceeds of the sale, Home Retail shareholders would also get 25p per share and a 2.8p payment in lieu of a final dividend. Inevitably, one off costs are set to come on the back of the deal (c. £140m over the first 3 years), but £120m of annual savings are expected by 2019. A firm offer now needs to be made by the extended date of 23 February as Sainsbury’s carry out due diligence on the parent owner of Argos, or ultimately, walk away.

Elsewhere in the UK, BP reported their worst annual loss in 20 years and the loss of thousands more jobs as they continue to struggle with the ever falling price of oil. An annual loss of $5.2bn has been reported for 2015, whilst 3,000 jobs are to be cut in its refining and marketing arm by the end of next year. These job cuts come on top of the 4,000 cuts they previously announced in oil and gas production and is a further reaction by the oil giants to manage costs when oil has been averaging $44 a barrel in Q4 of 2015. Oil has continued to tumble since the turn of the year and is trading around $32.5 a barrel during European trading today (albeit higher than the $27/barrel it traded at in January). BP led the fallers in the FTSE 100 during most of today’s trading, closing down 8.68%. Peers Royal Dutch Shell and BG also suffered declines today with the former expecting to report a heavy beating of profits later this week.

The ongoing concern in China and the ever persistent fall in oil weighed on blue chip stocks in the UK. Oil prices are suffering from volatility as over production for the commodity looks to continue and subsequently, mining stocks come under pressure; Anglo American fell by nearly 8% today. Downgrades to BHP Billiton and Rio Tinto also weighed heavily on the index as they fell  by 6.74% and 4.63% respectively. The FTSE 100 ended the day lower by  2.28%, falling back below 6,000 points. Elsewhere in Europe the CAC 40 fell by 2.53%, with the German DAX lower by 1.81%. At the time of writing in the US, the Dow Jones and the S&P 500 are both lower by more than 1.3%.