Sainsbury’s Ends Talks With JD.com Over Selling Argos Unit
The JD.com Inc. headquarters building in Beijing, China.
(Bloomberg) — J Sainsbury Plc terminated talks to sell its general merchandise unit Argos to JD.com Inc. and blamed the Chinese e-commerce firm for trying to “materially revise” the terms of the deal.
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Britain’s second-largest grocer said Sunday that JD.com’s new terms and commitments would not be in the best interests of its shareholders and broader stakeholders. It came just a day after Sainsbury’s had said the Chinese firm could drive growth at Argos.
Shares of Sainsbury’s rose as much as 4.5% in early trading on Monday. Its stock is up more than 16% since the start of the year.
Sainsbury’s quick rejection of a “lowball offer” shows it will only sell at a price “that captures a high proportion of the expected cyclical upside to profit,” said Bloomberg Intelligence analyst Charles Allen.
The supermarket group originally bought Argos in 2016 for £1.1 billion ($1.5 billion) under then Chief Executive Officer Mike Coupe who said the deal would allow shoppers to benefit from 2,000 locations for click and collect.
However, Argos has been a drag on its parent’s business at times, with sales falling 2.7% in last year’s results while the broader business gained 4.2%. Sainsbury’s has closed 420 standalone Argos stores since the deal completed and integrated Argos outlets into some of its bigger existing supermarkets.
Current CEO Simon Roberts, who has been at the helm since 2020, has placed food, rather than general merchandise, at the core of his strategy for Sainsbury’s, seeking to protect market share from rivals including Tesco Plc, Asda and Aldi.
The news will be a blow to JD.com, which has been hunting for deals to expand amid weakness in the Chinese economy. Last year it explored an acquisition of British electronics retailer Currys Plc and in July the firm offered to acquire Germany’s Ceconomy AG, Europe’s largest consumer electronics retailer.
Last week, the French government asked JD.com to provide more information about its offer for Ceconomy, which owns about 22% of French electronics retailer Fnac Darty Sa. It wants a clearer idea of JD.Com’s reasons for the investment and how that fits with its strategy in Europe and France.
France Asks JD.com for More Information on Ceconomy Takeover (1)
Without Argos, Sainsbury’s would have a greater focus on food and less earnings volatility, which would address a major concern of investors, analysts at Jefferies wrote in a note to clients Sunday.