Shares in supermarket giant Sainsbury’s saw a significant jump on Monday morning following weekend revelations of collapsed talks to sell its Argos business to Chinese e-commerce firm JD.com.
The UK’s second-largest grocery chain experienced a 6 per cent rise in its stock within the FTSE 100 index as investors responded to the news.
Sainsbury’s had confirmed on Saturday that it was engaged in discussions with JD.com, one of China’s biggest retailers, regarding a potential sale of Argos, a move it suggested could “accelerate Argos’ transformation”.
However, by Sunday, the supermarket announced it had “terminated” these discussions. Sainsbury’s stated that JD.com’s proposed terms and commitments were “not in the best interests of Sainsbury’s shareholders, colleagues and broader stakeholders”.
Despite the swift end to negotiations, investment expert Dan Coatsworth at AJ Bell commented that the brief talks, though ultimately fruitless, meant the “firing gun has effectively been triggered on the sale of Argos”.
“Sainsbury’s might have rejected an offer from Chinese retailer JD, but the fact it hasn’t come out and said the business isn’t for sale at any price is telling,” he added.
Argos is the UK’s second largest general merchandise retailer, with the third most visited retail website in the UK and more than 1,100 collection points.
In a statement on Sunday, Sainsbury’s said: “JD.com has communicated that it would now only be prepared to engage on a materially revised set of terms and commitments which are not in the best interests of Sainsbury’s shareholders, colleagues and broader stakeholders.
“Accordingly, Sainsbury’s confirms that it has now terminated discussions with JD.com.”
The statement added: “We are taking focused action to extend range, enhance digital capabilities and improve relevance to grow frequency and spend in Argos whilst delivering further operating model efficiencies.”
Sainsbury’s said that it continues to see “strong momentum” in its business and remains focused on delivering its Next Level strategy.
JD.com entered the e-commerce sector in 2004 and became the first major e-commerce company from China to be listed on the Nasdaq in May 2014, according to its website.
The talks come after sales at Argos have been flagging, with the firm focused on a revamp at the chain.
Argos sales fell 2.7 per cent to £4.9 billion in the year to March, although the chain has since delivered growth of 4.4 per cent in the first quarter of the new financial year.
Mr Coatsworth at AJ Bell said: “Sainsbury’s has talked up a food-first strategy for some time, implying that Argos wasn’t core to its long-term plans.
“The general merchandise business hasn’t been doing that well for a few years and it always felt like Argos concessions were hidden away in the corner rather than being a prominent part of a Sainsbury’s store.”
He said “splitting Argos from the supermarket group won’t be easy, but not impossible”, given that much of the Argos estate is now located within Sainsbury’s stores.
“That would mean a new owner must either rely on the remaining store estate, open more stores or think hard about making Argos a digital-only brand,” he added.
