Supermarket Sainsbury’s has seen shares jump higher after weekend revelations over talks to sell Argos to Chinese e-commerce giant JD.com, despite discussions swiftly collapsing.
Shares in the UK’s second largest grocery chain rose 6% at one stage in the FTSE 100 index on Monday morning as investors reacted to the news.
On Saturday, Sainsbury’s said it was in discussions regarding a potential sale of its Argos business to JD.com, which is one of China’s biggest retailers, a deal it said could “accelerate Argos’ transformation”.
But on Sunday, it confirmed it had “terminated” discussions over a potential sale, saying JD.com’s terms and commitments were “not in the best interests of Sainsbury’s shareholders, colleagues and broader stakeholders”.
Investment expert Dan Coatsworth at AJ Bell said the talks, while coming to nothing, 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% to £4.9 billion in the year to March, although the chain has since delivered growth of 4.4% 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.
