London - Sainsbury's, Britain's second-biggest supermarket, said on Wednesday a takeover of Home Retail was strategically compelling but insisted it would not overpay for the owner of the Argos household goods and Homebase do-it-yourself chains.
Sainsbury's is considering whether to make a second approach for Home Retail after an initial cash and shares offer, made in November, was rejected. Under British takeover rules it has until Febuary 2 to make a firm offer or walk away.
On Wednesday the grocer published a 21-page presentation to further explain the rationale of the proposed deal, which centres around accelerating its growth strategy by getting its hands on Argos's home delivery and digital expertise.
The presentation accompanied a better than expected trading statement for the key Christmas quarter.
Sainsbury's has not disclosed the value of its cash and shares approach. Media reports say it offered about 1.1 billion pounds ($1.59 billion) but some Home Retail investors want 1.6 billion pounds or 200 pence a share.
Shares in Home Retail, which were trading at about 100 pence prior to news of the approach last week, were up 4.9 percent at 148.9 pence at 1151 GMT.
Sainsbury's shares are down about 4 percent since it revealed its approach, with some investors questioning its logic.
“It's a transaction that is not at any price,” Chief Executive Mike Coupe told reporters.
“We have a view on what we can afford to pay, what makes sense from a financial point of view. What makes sense for our shareholders.”
He said investor feedback had been “pretty balanced”.
Coupe dismissed concerns expressed by some analysts and investors that there was little overlap between Sainsbury's and Argos customers.
“The crossover between the customer base, the idea that somehow they are mutually exclusive is just not right,” he said, noting 40 percent of British households shop at both.
Coupe declined to comment on Sainsbury's plans for the Homebase chain. Analysts think it would be sold on.
“I suspect that most Sainsbury's holders are wobbly enough about the deal's rationale and merit that they really will not tolerate Sainsbury's paying up for Home Retail,” said a major institutional investor in both companies.
Cato Stonex, fund manager at THS Partners, which owns 2.7 percent of Home Retail's equity, said he did not want to sell, seeing potential for the firm to be worth closer to 400 pence a share at the completion of Argos's turnaround plan.
“From Sainsbury's point of view, it's very clever,” he said.
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Sainsbury's also reported on Wednesday that its sales at stores open over a year fell 0.4 percent, excluding fuel, in the 15 weeks to Jan. 9, its fiscal third quarter, ahead of analysts' average forecast of down 0.7 percent and a second quarter decline of 1.1 percent.
Sainsbury's has shown greater resilience to competition from discounters Aldi and Lidl than its big four rivals - Tesco , Wal-Mart's Asda and Morrisons - but has still endured eight straight quarters of declining underlying sales, hurt by industry deflation, including its own price cuts.
The firm said it benefited from an increase in the number of transactions its customers were undertaking, and the volume of products bought as shoppers traded up to more premium products, such as its “Taste the Difference” range.
Moves to narrow the price gap with discounters, improve product availability and customer service have also found favour with consumers, as did an advertising campaign featuring Mog the cat.
Sainsbury's now expects second-half like-for-like sales to be better than the first. Previously it had expected a similar performance.
On Tuesday industry data showed Sainsbury's was the best performer of the big four over Christmas on a total sales basis. However, Morrisons reported a surprise rise in underlying sales it is own trading update.
REUTERS