Coupe’s great leap forward

MIKE Coupe was convinced of the need to win control of Argos and more control of online shopping by his daughter’s preference to make purchass on her mobile. But the real test for him will be execution if the deal is eventually done.

Experience tells us that very few mergers create new value and the distraction for managers, especially those engaged in a market as competitive as grocery, can be damaging.

At least Sainsbury’s is going into the prospective deal with a degree of confidence. It looks to be riding out the no-frills challenge with a degree of aplomb with a minor 0.4pc dip in same-store trading over the festive period. The company’s reputation for offering better quality than its biggest competitors, Tesco and Asda, and being not far off Waitrose, is serving it well.

Similarly, it looks to be coping with multi-channel shopping reasonably well. Sales from convenience stores, online and non-food are impressively up. Investors (which include this writer) clearly have concerns that because Sainsbury’s has set out with determination to buy Argos, and may even be willing to go hostile, it might overpay.

This presumably will be the concern of its biggest investor, Qatar, which has a 25.1pc stake. The attitude of the founding Sainsbury family, which holds more than 6pc, will also be critical. It is hard to believe that chairman David Tyler and chief executive Coupe will not have personally explained the reasons for the proposal to these critical holders.

One of the most fascinating statistics offered by Coupe and company at the results presentation is that, between them, Sainsbury’s and Argos would have a larger share of Britain’s non-food, online market than internet giant Amazon which has begun experimenting with food deliveries.

One big disadvantage for Sainsbury’s is that it pays the full whack of corporation tax and Amazon doesn’t. And Sainsbury’s sharehold- ers expect the company to turn in rising revenues, profits and a dividend whereas Amazon investors have learned to be patient.

Jeff Bezos, the Amazon founder, is that rare thing – an entrepreneur who refuses to bow to convention and spends every cent the company earns on new ventures, which has taken it into a wide variety of activities from cloud computing to newspapers (the Washington Post), TV programming and, most remarkably of all, a bricks and mortar bookshop – having eliminated great chunks of the independent sector.

Putting price to one side for the moment, there must be some confidence that Sainsbury’s can manage this deal. The likely sale of Homebase (paradoxically once an arm of Sainsbury’s) should make things simpler. Sainsbury’s has sensibly trialled Argos counters in its branches and the combination seems to have worked, in much the same way that Carphone worked inside Best Buy stores in the US (before the deal fizzled).

As noted here before, Sainsbury’s chairman is au fait with the assets concerned having spun them out of GUS a decade ago. Much will have changed since then, including the IT and hub-and-spoke logistics at the core of the enterprise, so detailed due diligence would be helpful. That is why keeping the deal friendly would be much more sensible as it would allow a more detailed look at the books. There are risks as with any deal – at least this one looks to the future in a grocery market where the players are knocking seven bells out of each other.

Bad apples

ANYONE viewing the film of Michael Lewis’s book ‘The Big Short’ (to be released on January 22) will have no difficulty recognising the terrible outcomes of the bonus culture among banks.

It is encouraging, then, that the Bank of England’s chief enforcer Andrew Bailey is seeking to close a ‘significant’ loophole in the present rules governing bankers’ pay.

A consultation done by the Bank indicates that there have been a number of bankers and traders who pocket large bonuses, earned by abusive behaviour, and move onto other organisations before regulators or former employers can enforce ‘clawback’ of the wrongly awarded bonuses.

Under the proposal unveiled by the Prudential Regulation Authority’s chief, recovery – or clawback – will still be possible should it be established that there was misconduct at their previous place of work. This, it is hoped, would weed out the so called ‘rolling bad apples’ who irresponsibly chase bonuses and then move onto fresh pastures.

This is a useful corrective after a couple of weeks when the determination of the authorities to deal with bad bankers has been under scrutiny.

Bond alert

AB InBev has received some $70bn of applications for $25bn of bonds to help finance its $107bn takeover of SABMiller. Investors must be assuming that little can go wrong at the brewer where there is healthy cashflow and the new owner has considerable pricing power.

Maybe. But deals done at the peak of the credit cycle, just as the Federal Reserve starts tightening, have a habit of going wrong.