Sainsbury’s has warned that up to 600 head office jobs are at risk in its £1.4bn takeover of Argos owner Home Retail Group, but promised the deal would ultimately create several hundred new roles.
The potential impact on staff was revealed as the chief executive of Sainsbury’s, Mike Coupe, reiterated his commitment to the takeover. Other merger deals have stalled amid uncertainty created by the EU referendum result.
“I remain convinced by the strategic rationale of the deal,” Coupe said. “We believe that we can still deliver against the synergies and the execution that we’ve outlined in the document, regardless of what economic conditions prevail.”
The details of how the two businesses would be merged were outlined in a 188-page prospectus published on Tuesday. The document warned of the potential post-Brexit risks to the UK economy and trade in Sainsbury’s stores, but finance chief John Rogers, who will run Argos once the deal is completed, said this was standard practice.
“It’s sensible to include a risk that captures the volatility of the economic environment,” Rogers said. “We’ve called Brexit out specifically because that’s something that’s very current in the economic backdrop.”
In the document, Sainsbury’s estimates a reduction of “approximately 400 to 600 roles across corporate and support functions”. The final number will depend on the outcome of a more detailed review after the merger is completed, which is expected to be in September.
Sainsbury’s said that 200 to 300 store jobs would be eliminated by plans to relocate Argos’s high street branches to its supermarkets, although it added that many staff would move over. Despite the workforce changes, the UK’s second largest retailer insisted the takeover of Argos would create jobs because new Argos stores would be opened, as well as additional collection points in its supermarkets.
“Sainsbury’s expects the overall effect of the acquisition on the combined headcount of the group to be positive over the long term. It is expected that the net increase of around 1,000 or more retail operations roles will more than counterbalance the 400 to 600 reduction in corporate and support function roles,” the company said.
It added that there was “no current intention” to close Home Retail’s head office in Milton Keynes or the Sainsbury’s office in Coventry, although certain functions may move between Milton Keynes and other Sainsbury’s office locations. The prospectus revealed that putting the deal together had cost Sainsbury’s more than £30m in advisory fees, while Home Retail had a bill for close to £19m.
Some analysts think the merger – which will turn Sainsbury’s into Britain’s biggest non-food retailer – is risky as it will put the business in the firing line of any Brexit-related high street downturn.
But Coupe warned against paying too much attention to initial post-Brexit surveys, which have indicated a dip in consumer confidence. “To predict the future off 10 days’ worth of data I think is impossible,” he said. The chief executive also warned that talk of a recession could prove self-fulfilling: “There is a danger that we’ll talk ourselves into it.”
On Monday, Coupe said he was ending Sainsbury’s joint venture with discount chain Netto, with Netto’s 16 stores set to close in August, putting 400 jobs at risk. Sainsbury’s said it would make a £20m writedown on Netto’s assets and spend £10m on winding down the business.
Although Sainsbury’s hopes to complete the Home Retail deal by the autumn, it is currently being considered by the competition regulator, which said in May it would decide by 25 July whether to launch a full investigation.
The cash and shares deal was agreed in April and at the time was worth about £1.4bn. However, Sainsbury’s shares have fallen 19% over the last three months, reducing the deal’s value.
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