Home Retail Group, the owner of Argos and Homebase, has attracted the unwanted attention of several private equity groups, according to Sunday Times sources that suggest it could sell for up to £1bn. PrivateEquityBase just doesn’t have the same ring to it...
Whether the rumours prove to be true or not remains to be seen, but it wouldn’t be surprising if an offer was made. After all, shares in Home Retail Group are going cheap. They’ve lost half their value since January, though they did rise 5.8% to 109.4p by lunchtime on the takeover talk.
Home Retail Group boss John Walden is busy modernising Argos (bulky catalogues are out; slick tablets and click-and-collect are in) and streamlining Homebase (if a store's underperforming, sell it). By and large, it seems to be working. In its first half results, the firm reported a 10% rise in pre-tax profits to £34m, while like-for-like sales at Homebase were up 5.6%.
But at the same time it issued a profit warning over concerns that Argos might not perform as well as originally hoped over the frantic Christmas shopping period that now begins this week with Black Friday. The PE firms seem to have smelled the blood in the water.
The firm may be going cheap, but it’s far from clear it would be a bargain. Intense competition from the likes of Amazon has ensured tight margins (that £34m in profit was off £2.5bn in sales), and it’s sitting on a lot of supermarket-sized property assets that aren’t exactly flying off the shelves at the moment. That doesn't seem to deterring the PE firms - though perhaps the share spike on their takeover interest will, if it keeps going any higher.