TSCDY Tesco PLC (PK)

By Denise Roland 

LONDON--U.K. retailer J Sainsbury PLC said Tuesday it made an unsuccessful cash-and-stock offer in November for Home Retail Group PLC, parent of Argos and former Sainsbury unit Homebase.

Sainsbury, the No. 2 U.K. supermarket chain by market share after Tesco PLC, said Home Retail rejected the approach and no further approach or formal offer is certain. Sainsbury didn't disclose the value of its November offer. Home Retail Group had a market capitalization of GBP802.9 million ($1.18 billion) as of Monday's close.

The British grocer said a combination of the two companies would create a broad-ranging retailer that could make use of both companies' existing retail space and sell products to each other's customers. Sainsbury also said there would be benefits to bringing together the two group's online shopping and home delivery capabilities. It highlighted that the two were already working together in an experimental placement of Argos concessions in some Sainsbury stores.

A merged Sainsbury-Home Retail Group would have an expansive retail footprint across the U.K. Sainsbury operates more than 1,200 shops across the country, ranging from small convenience outlets to out-of-town superstores. Argos and Homebase have 740 and 340 stores, respectively, according to the company websites.

Still, a tie-up likely would lead to the closure of some of those stores. Sainsbury said a deal would provide "additional cost-synergy potential through property rationalization, scale benefits and operational efficiencies."

A deal also would bring the Homebase do-it-yourself chain back into the hands of Sainsbury, which along with a Belgian retailer co-founded what was then known as Sainsbury's Homebase in 1979. Sainsbury sold the Homebase chain in 2000.

Home Retail Group couldn't immediately be reached for comment.

The approach comes at a tumultuous time for the U.K.'s grocery industry, which has struggled to adapt to changing customer habits, largely due to heavy competition from discount retailers such as Aldi and Lidl. Sainsbury said in November that its half-year profit, at GBP375 million, was 18% lower than a year earlier.

Home Retail shares, which were already moving up Tuesday morning, soared after Sainsbury's midday announcement. They were lately up more than 36% at 135 pence in London trading. Home Retail had traded above 200 pence less than a year ago but has declined sharply as the company's stores have struggled in the tough U.K. retail environment.

Sainsbury shares were down 4.2% to 245 pence Tuesday afternoon.

Under U.K. takeover rules, Sainsbury has until 5 p.m. GMT Feb. 2 to make a firm offer for Home Retail or walk away.

Ian Walker contributed to this article.

Write to Denise Roland at Denise.Roland@wsj.com

Corrections & Amplifications

J Sainsbury PLC is the No. 2 U.K. supermarket chain by market share after Tesco PLC. An earlier version of this article incorrectly said it was No. 3 after Tesco and Wal-Mart Stores Inc.'s Asda. (Jan. 5, 2016)

(END) Dow Jones Newswires

January 05, 2016 09:12 ET (14:12 GMT)

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