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RNS
Sainsbury(J) PLC  -  SBRY   

Offer for Home Retail Group plc

Released 16:31 18-Mar-2016

RNS Number : 6453S
Sainsbury(J) PLC
18 March 2016
 

THIS ANNOUNCEMENT IS AN ADVERTISEMENT AND NOT A PROSPECTUS OR PROSPECTUS EQUIVALENT DOCUMENT AND INVESTORS SHOULD NOT MAKE ANY INVESTMENT DECISION IN RELATION TO THE NEW SAINSBURY'S SHARES EXCEPT ON THE BASIS OF INFORMATION IN THE PROSPECTUS AND THE OFFER DOCUMENT WHICH ARE PROPOSED TO BE PUBLISHED IN DUE COURSE

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, IN, INTO OR FROM THE UNITED STATES OR ANY OTHER JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION

 

18 March 2016

CASH AND SHARE OFFER
for
HOME RETAIL GROUP PLC
by
J SAINSBURY PLC

Summary

·        Further to the announcement by J Sainsbury plc ("Sainsbury's") and Home Retail Group plc ("HRG") on 2 February 2016 setting out the key financial terms of a possible offer for HRG (the "Agreed Terms Announcement"), the Board of Sainsbury's announces the terms of a cash and share offer for HRG by Sainsbury's (the "Offer").

·        Following due diligence, Sainsbury's now expects a higher level of EBITDA synergies of not less than £160 million in the third full year after Completion. This represents an increase of one third compared to the previous estimate of not less than £120 million EBITDA synergies included in the Agreement Terms Announcement.

·        Under the terms of the Offer, which will be subject to the Conditions as set out in Appendix 1 to this announcement and to the full terms and conditions which will be set out in the Offer Document and the Form of Acceptance, HRG Shareholders will be entitled to receive:

For each HRG Share

0.321 New Sainsbury's Shares

 

and

 

55 pence in cash

 

(the "Offer Consideration")

·        In addition, HRG Shareholders are expected to be entitled to receive a special dividend of 27.8 pence per HRG Share (the "Special Dividend"), provided only that the Board of HRG resolves to pay the Special Dividend prior to the Offer becoming or being declared unconditional in all respects, representing the sum of:

·        25 pence per HRG Share, reflecting the £200 million return to shareholders in respect of the Homebase Sale (the "Homebase Payment"), as announced by HRG on 18 January 2016; and

·        2.8 pence per HRG Share in lieu of a final dividend in respect of HRG's financial year ended 27 February 2016 (the "Additional HRG Payment").

·        The amount of the Special Dividend is equal to the proposed payments by HRG described in the Agreed Terms Announcement, in which the Board of HRG indicated that it intended to make payments of these amounts to HRG Shareholders irrespective of whether or not an offer for HRG was made or completed.

·        Whether or not the Special Dividend is paid (in full or at all) will not affect the Offer Consideration.

·        Whilst there can be no guarantee that the Board of HRG will resolve to pay the Special Dividend, Sainsbury's will keep HRG informed about the progress of its Offer in order that the Board of HRG has sufficient notice of the date by which the Board of HRG should resolve to pay the Special Dividend.

·        Based on the Closing Price of Sainsbury's Shares of 281.5 pence on the Last Practicable Date:

·        the Offer Consideration represents an indicative value of 145.4 pence per HRG Share and values HRG's issued ordinary share capital at approximately £1.2 billion;

·        the Offer Consideration and the Special Dividend (assuming it is paid) together represent an indicative value of 173.2 pence per HRG Share and value HRG's issued ordinary share capital at approximately £1.4 billion; and

·        the Offer Consideration and the Special Dividend (assuming it is paid) together represent a premium of approximately 75 per cent. to the Closing Price of 98.7 pence per HRG Share on 4 January 2016 (being the last Business Day prior to the commencement of the Offer Period). 

·        Assuming acceptance in full of the Offer, it is expected that HRG Shareholders will hold approximately 12 per cent. of the enlarged issued ordinary share capital of Sainsbury's (based on the existing issued ordinary share capital of Sainsbury's and HRG).

·        Prior to the Agreed Terms Announcement, the Board of HRG had indicated to Sainsbury's that it would be willing to recommend Sainsbury's offer, if made, on the financial terms set out therein. As a result of the subsequent announcement by Steinhoff of its possible offer for HRG, as of the date of this announcement, Sainsbury's has not received the HRG Board's recommendation of its Offer. The Board of Sainsbury's will continue to discuss the merits of its Offer with the Board of HRG and seek its recommendation of the Offer in due course.

·        The Offer will include a Mix and Match Facility, as set out in further detail in paragraph 6 of this announcement.

Reasons for the Offer

·        The Sainsbury's Board believes that the Offer represents a compelling opportunity to accelerate Sainsbury's existing strategy, with numerous expected strategic and financial benefits:

·        Creates a leading food and non-food retailer of choice for customers, building on the strong heritage of both the Sainsbury's and HRG businesses whose brands are renowned for trust, quality, value and customer service;

·        Delivers profitable sales growth by offering customers the right combination of location, range, speed and flexibility, across a wide range of products;

·        Optimises the use of Sainsbury's and HRG's combined retail space. The Combined Group will have attractively located stores across the UK and Ireland, with an enhanced supply and delivery network;

·        Creates the ability to relocate existing Argos stores into Sainsbury's supermarkets, which will reduce fixed operating and store labour costs when compared to standalone Argos stores;

·        Creates the ability to expand the Argos store network by opening new infill Argos stores within Sainsbury's supermarkets in catchments that are not currently served by Argos, delivering additional sales, creating new retail roles and delivering attractive returns on investment;

·        Creates cross selling opportunities between the two businesses through the relocations and infills and from the opportunity to offer Argos Click and Collect services across the Sainsbury's store network;

·        Brings together multi-channel capabilities including digital, store and delivery networks to provide fast, flexible and reliable product fulfilment to store or to home across a wide range of food and grocery, clothing, homewares, toys, stationery, electrical goods, furniture and other general merchandise;

·        Creates a financial services proposition that will provide a wider range of customer-centric services including credit cards, loans, deposits, insurance and ATMs;

·        Delivers EBITDA synergies of not less than £160 million in the third full year after Completion, comprising (i) cost saving and revenue gains from Argos concessions in Sainsbury's, (ii) cost synergies from removing duplication and overlap from both central and support functions at Sainsbury's and HRG, and (iii) revenue synergies from the sale of Sainsbury's clothing, homewares and seasonal and leisure ranges through the existing Argos network together with the roll-out of Sainsbury's ATMs to Argos locations and the sale of Habitat products through Sainsbury's channels; and

·        The Sainsbury's Directors expect that the Offer will result in double digit earnings per share accretion (excluding the effects of implementation costs) and a low to mid teens return on invested capital (inclusive of implementation costs) (1)  in the third full year following Completion. (2)

Notes:

(1)           Return on invested capital is defined as acquired post-tax EBIT plus post-tax synergies divided by purchase price plus implementation costs net of tax.

(2)           These statements are not, and shall not be construed as, profit forecasts.

Conditions to the Offer

·        The Offer will be conditional upon, amongst other things: (i) valid acceptances having been received in respect of not less than 90 per cent. (or such lesser percentage as Sainsbury's may decide) of the HRG Shares to which the Offer relates and of the voting rights attached to those shares; and (ii) regulatory clearances being received from the FCA, the GFSC and the CMA.

·        Further details of the Conditions and the further terms of the Offer are set out in Appendix 1 to this announcement.

Commenting on today's announcement, David Tyler, Chairman of Sainsbury's said:

"The UK grocery retail industry is undergoing a period of intense change in customer shopping behaviour and in the competitive environment. Against this backdrop, Sainsbury's has performed resiliently by offering great quality products at fair prices, by providing a differentiated service, and by developing strong multi-channel capabilities. All of this continues to be underpinned by our core values.

This combination with HRG presents an opportunity to accelerate our strategy, delivering compelling revenue and cost synergies. We will create a multi-product, multi-channel proposition with fast delivery networks that we believe will be very attractive to the customers of both businesses."

The full terms and conditions of the Offer will be set out in the Offer Document and (in respect of HRG Shareholders who hold HRG Shares in certificated form) the Form of Acceptance, which will be despatched to HRG Shareholders within 28 days of the date of this announcement or such later date as Sainsbury's decides, with the consent of the Panel. It is expected that the Prospectus, containing further information in relation to the New Sainsbury's Shares, will be published on or around the same time. The Offer is expected to become unconditional in all respects during the third quarter of 2016, subject to the satisfaction (or, where applicable, waiver) of the Conditions set out in Appendix 1 to this announcement.

This summary should be read in conjunction with, and is subject to, the full text of this announcement (including its Appendices). The Offer will be subject to the Conditions and certain further terms set out in Appendix 1 to this announcement and to the full terms and conditions which will be set out in the Offer Document and the Form of Acceptance. Appendix 2 contains the sources and bases of certain information contained in this announcement. Appendix 3 contains information relating to the Revised Quantified Financial Benefits Statement made in this announcement and the reports of Sainsbury's reporting accountants and financial advisers. Appendix 4 includes Sainsbury's Profit Estimate and the basis of preparation relating thereto. Appendix 5 contains the definitions of certain terms used in this summary and the following announcement.

Enquiries

Sainsbury's

Duncan Cooper, Investor Relations                                              Tel: +44 (0) 20 7695 4740

Louise Evans/Anna Harland, Media Relations                             Tel: +44 (0) 20 7695 7295

 

Brunswick (PR Adviser to Sainsbury's)

Katie Ioanilli/Mike Smith                                                              Tel: +44 (0) 20 7404 5959

 

Morgan Stanley (Financial Adviser to Sainsbury's)

Paul Baker                                                                                      Tel: +44 (0) 20 7425 8000

Ian Hart

Nick Bishop

 

UBS (Financial Adviser to Sainsbury's)

Hew Glyn Davies                                                                          Tel: +44 (0) 20 7567 8000

Anna Richardson Brown

 

Further information

This announcement is for information purposes only. It is not intended to and does not constitute, or form part of, any offer, invitation or the solicitation of an offer to purchase, otherwise acquire, subscribe for, sell or otherwise dispose of any securities, or the solicitation of any vote or approval in any jurisdiction, pursuant to the Offer or otherwise, nor shall there be any sale, issuance or transfer of securities of Sainsbury's or HRG pursuant to the Offer or otherwise in any jurisdiction in contravention of applicable law. The Offer will be made solely by means of the Offer Document, which will contain the full terms and conditions of the Offer, including details of how to accept the Offer.

Sainsbury's will prepare and publish the Prospectus containing information about the New Sainsbury's Shares. Sainsbury's urges HRG Shareholders to read the Offer Document and the Prospectus carefully when they become available because they will contain important information in relation to the Offer and the New Sainsbury's Shares. Any decision in respect of the Offer or other response in relation to the Offer should be made only on the basis of the information contained in the Offer Document (or, in the event that the Offer is to be implemented by means of a Scheme, the Scheme Document) and the Prospectus.

This announcement is an advertisement and does not constitute a prospectus or prospectus equivalent document.

Important notices relating to financial advisers

Morgan Stanley & Co. International plc ("Morgan Stanley"), which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority in the United Kingdom, is acting as financial adviser to Sainsbury's and no-one else in connection with the Offer or any other matter referred to herein. In connection with such matters, Morgan Stanley, its affiliates and their respective directors, officers, employees and agents will not regard anyone other than Sainsbury's as their client, nor will they be responsible to any other person for providing the protections afforded to their clients or for providing advice in relation to the Offer, the contents of this announcement or any other matter referred to herein.

UBS Limited ("UBS") which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority in the UK is acting as joint financial adviser to Sainsbury's and no one else in connection with the matters set out in this announcement. In connection with such matters, UBS, its affiliates, and its or their respective directors, officers, employees and agents will not regard any other person as their client, nor will they be responsible to anyone other than Sainsbury's for providing the protections afforded to their clients or for providing advice in relation to the contents of this announcement or any other matter referred to herein.

Overseas jurisdictions

The release, publication or distribution of this announcement in or into jurisdictions other than the UK and the availability of the Offer to HRG Shareholders who are not resident in the UK or who are subject to the laws and/or regulations of another jurisdiction (including the ability of such HRG Shareholders to accept the Offer and/or to execute and deliver a Form of Acceptance) may be restricted by the laws and/or regulations of those jurisdictions. Therefore any persons who are not resident in the UK or who are subject to the laws and/or regulations of any jurisdiction other than the UK should inform themselves about, and observe, any applicable legal or regulatory requirements. Any failure to comply with the applicable restrictions may constitute a violation of the laws and/or regulations of any such jurisdiction. To the fullest extent permitted by applicable law, the companies and persons involved in the Offer disclaim any responsibility or liability for the violation of such restrictions by any person.

This announcement has been prepared for the purposes of complying with English law, the Listing Rules, the rules of the London Stock Exchange and the Takeover Code and the information disclosed may not be the same as that which would have been disclosed if this announcement had been prepared in accordance with the laws and/or regulations of jurisdiction outside the UK.

Unless otherwise determined by Sainsbury's or required by the Takeover Code, and permitted by applicable law and regulation, the Offer will not be made, directly or indirectly, in, into or from or by the use of mails or any other means or instrumentality (including, but not limited to, facsimile, e-mail or other electronic transmission, telex or telephone) of interstate or foreign commerce of, or of any facility of a national state or other securities exchange of the United States or any other Restricted Jurisdiction and the Offer may not be capable of acceptance by any such use, means, instrumentality or facilities or from within the United States or any other Restricted Jurisdiction. Accordingly, unless otherwise determined by Sainsbury's or required by the Takeover Code, and permitted by applicable law and regulation copies of this announcement and any formal documentation relating to the Offer are not being, and must not be, directly or indirectly, mailed or otherwise forwarded, distributed or sent in, into or from the United States or any other Restricted Jurisdiction and persons receiving such documents (including agents, custodians, nominees and trustees) must not mail or otherwise forward, distribute or send them in, into or from the United States or any other Restricted Jurisdiction. Any person (including, without limitation, any custodian, nominee and trustee) who would, or otherwise intends to, or who may have a contractual or legal obligation to, forward this announcement and/or the Offer Document and/or any other related document to any jurisdiction outside the UK should inform themselves of, and observe, any applicable legal or regulatory requirements of their jurisdiction.

Further details in relation to HRG Shareholders in overseas jurisdictions will be contained in the Offer Document.

Note to US holders of HRG Shares and HRG ADR Holders

The New Sainsbury's Shares to be issued pursuant to the Offer have not been, and will not be, registered under the US Securities Act. In the United States, the Offer will be made and the New Sainsbury's Shares will be offered to holders of HRG Shares and HRG ADR Holders only if an exemption from the registration requirements of the US Securities Act is available.

Neither the SEC nor any US state securities commission has approved or disapproved of the New Sainsbury's Shares to be issued in connection with the Offer, or determined if this announcement is accurate or complete. Any representation to the contrary is a criminal offence in the United States.

Forward-looking statements

This announcement (including information incorporated by reference in this announcement), oral statements made regarding the Offer, and other information published by Sainsbury's and (as relevant) HRG contain statements which are, or may be deemed to be, "forward-looking statements". All statements, other than statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements are prospective in nature and are not based on historical facts, but rather on current expectations and projections of the management of Sainsbury's and (as relevant) HRG about future events, and are therefore subject to risks and uncertainties which could cause actual results, performance or events to differ materially from those expressed or implied by the forward-looking statements. The forward-looking statements contained in this announcement include statements relating to the expected effects of the Offer on the Sainsbury's Group and the Combined Group, the expected timing and scope of the Offer and other statements other than historical facts. Often, but not always, forward-looking statements can be identified by the use of forward-looking words such as "plan", "expect", "budget", "target", "aim", "scheduled", "estimate", "forecast", "intend", "anticipate", "assume" or "believe", or variations of such words and phrases or statements that certain actions, events or results "may", "could", "should", "would", "might" or "will" be taken, occur or be achieved. Sainsbury's can give no assurance that expectations reflected in the forward-looking statements will prove to be correct. By their nature, forward-looking statements involve risks (known and unknown) and uncertainties (and other factors that are in many cases beyond the control of Sainsbury's and/or (as relevant) HRG) because they relate to events and depend on circumstances that may or may not occur in the future.

There are a number of factors that could affect the future operations of the Sainsbury's Group  and/or the Combined Group and that could cause actual results and developments to differ materially from those expressed or implied by such forward-looking statements. These factors include the satisfaction of the Conditions, as well as additional factors, such as: domestic and global business and economic conditions; asset prices; market related risks such as fluctuations in interest rates and exchange rates, industry trends, competition, changes in government and regulation, changes in the policies and actions of governments and/or regulatory authorities (including changes related to capital and tax), changes in political and economic stability, disruption in business operations due to reorganisation activities, interest rate, inflation and currency fluctuations, the timing impact and other uncertainties of future or planned acquisitions or disposals or combinations, the inability of the Combined Group to realise successfully any anticipated synergy benefits when the Offer is implemented, the inability of the Sainsbury's Group to integrate successfully the HRG Group's operations and programmes when the Offer is implemented, the Combined Group incurring and/or experiencing unanticipated costs and/or delays, or difficulties relating to the Offer when the Offer is implemented. Other unknown or unpredictable factors could affect future operations and/or cause actual results to differ materially from those in the forward-looking statements. Such forward-looking statements should therefore be construed in the light of such factors.

Each forward-looking statement speaks only as of the date of this announcement. Neither Sainsbury's nor any of its associates or directors, officers or advisers, provides any representation, assurance or guarantee that the occurrence of the events expressed or implied in any forward-looking statements in this announcement will actually occur. All forward-looking statements contained in this announcement are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Readers are cautioned not to place undue reliance on these forward-looking statements. Other than in accordance with their legal or regulatory obligations (including under the Takeover Code, the Listing Rules and the Disclosure and Transparency Rules of the FCA), the Sainsbury's Group is under no obligation and undertakes no obligation, and expressly disclaims any intention or obligation, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

No profit forecasts or estimates

Unless expressly stated otherwise, no statement in this announcement (including any statement of estimated synergies) is intended as a profit forecast or a profit estimate and no statement in this announcement should be interpreted to mean that earnings per Sainsbury's Share or HRG Share for the current or future financial years would necessarily match or exceed the historical published earnings per Sainsbury's Share or HRG Share.

Disclosure requirements of the Takeover Code

Under Rule 8.3(a) of the Takeover Code, any person who is interested in 1 per cent. or more of any class of relevant securities of an offeree company or of any securities exchange offeror (being any offeror other than an offeror in respect of which it has been announced that its offer is, or is likely to be, solely in cash) must make an Opening Position Disclosure following the commencement of the Offer Period and, if later, following the announcement in which any securities exchange offeror is first identified.

An Opening Position Disclosure must contain details of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any securities exchange offeror(s). An Opening Position Disclosure by a person to whom Rule 8.3(a) applies must be made by no later than 3.30 pm (London time) on the 10th Business Day following the commencement of the Offer Period and, if appropriate, by no later than 3.30 pm (London time) on the 10th Business Day following the announcement in which any securities exchange offeror is first identified. Relevant persons who deal in the relevant securities of the offeree company or of a securities exchange offeror prior to the deadline for making an Opening Position Disclosure must instead make a Dealing Disclosure.

Under Rule 8.3(b) of the Takeover Code, any person who is, or becomes, interested in 1 per cent. or more of any class of relevant securities of the offeree company or of any securities exchange offeror must make a Dealing Disclosure if the person deals in any relevant securities of the offeree company or of any securities exchange offeror. A Dealing Disclosure must contain details of the dealing concerned and of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any securities exchange offeror(s), save to the extent that these details have previously been disclosed under Rule 8. A Dealing Disclosure by a person to whom Rule 8.3(b) applies must be made by no later than 3.30 pm (London time) on the Business Day following the date of the relevant dealing.

If two or more persons act together pursuant to an agreement or understanding, whether formal or informal, to acquire or control an interest in relevant securities of an offeree company or a securities exchange offeror, they will be deemed to be a single person for the purpose of Rule 8.3.

Opening Position Disclosures must also be made by the offeree company and by any offeror and Dealing Disclosures must also be made by the offeree company, by any offeror and by any persons acting in concert with any of them (see Rules 8.1, 8.2 and 8.4).

Details of the offeree and offeror companies in respect of whose relevant securities Opening Position Disclosures and Dealing Disclosures must be made can be found in the Disclosure Table on the Takeover Panel's website at www.thetakeoverpanel.org.uk, including details of the number of relevant securities in issue, when the Offer Period commenced and when any offeror was first identified. You should contact the Panel's Market Surveillance Unit on +44 (0)20 7638 0129 if you are in any doubt as to whether you are required to make an Opening Position Disclosure or a Dealing Disclosure.

Publication on website and availability of hard copies

A copy of this announcement will be made available, subject to certain restrictions relating to persons resident in or subject to laws and/or regulations of the United States or any other Restricted Jurisdictions, on the Sainsbury's Group's website at http://www.j-sainsbury.co.uk/investor-centre/disclaimer/ by no later than 12 noon (London time) on the Business Day following this announcement. For the avoidance of doubt, neither the contents of the website nor the contents of any website accessible from hyperlinks on the website (or any other websites referred to in this announcement) are incorporated into, or form part of this announcement.

Information relating to HRG Shareholders

Please be aware that addresses, electronic addresses and certain other information provided by HRG Shareholders, persons with information rights and other relevant persons for the receipt of communications from HRG may be provided to Sainsbury's during the Offer Period as required under Section 4 of Appendix 4 of the Takeover Code.

Rounding

Certain figures included in this announcement have been subjected to rounding adjustments. Accordingly, figures shown for the same category presented in different tables may vary slightly and figures shown as totals in certain tables may not be an arithmetic aggregation of the figures that precede them.

 

 

THIS ANNOUNCEMENT IS AN ADVERTISEMENT AND NOT A PROSPECTUS OR PROSPECTUS EQUIVALENT DOCUMENT AND INVESTORS SHOULD NOT MAKE ANY INVESTMENT DECISION IN RELATION TO THE NEW SAINSBURY'S SHARES EXCEPT ON THE BASIS OF INFORMATION IN THE PROSPECTUS AND THE OFFER DOCUMENT WHICH ARE PROPOSED TO BE PUBLISHED IN DUE COURSE

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, IN, INTO OR FROM THE UNITED STATES OR ANY OTHER JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION

 

18 March 2016

CASH AND SHARE OFFER
for
HOME RETAIL GROUP PLC
by
J SAINSBURY PLC

 

1.         Introduction

Further to the announcement by J Sainsbury plc ("Sainsbury's") and Home Retail Group plc ("HRG") on 2 February 2016 setting out the key financial terms of a possible offer for HRG (the "Agreed Terms Announcement"), the Board of Sainsbury's announces the terms of a cash and share offer for HRG by Sainsbury's (the "Offer" or the "Acquisition").

It is currently envisaged that the Acquisition will be implemented by way of a takeover offer, although Sainsbury's reserves the right to implement the Acquisition by way of a Scheme.

2.         The Offer

The Offer, which will be subject to the Conditions as set out in Appendix 1 to this announcement and to the full terms and conditions which will be set out in the Offer Document and the Form of Acceptance, will be made on the following basis:

For each HRG Share

0.321 New Sainsbury's Shares

 

and

 

55 pence in cash

 

(the "Offer Consideration")

In addition, HRG Shareholders are expected to be entitled to receive a special dividend of 27.8 pence per HRG Share (the "Special Dividend"), provided only that the Board of HRG resolves to pay the Special Dividend prior to the Offer becoming or being declared unconditional in all respects, representing the sum of:

·        25 pence per HRG Share, reflecting the £200 million return to shareholders in respect of the Homebase Sale (the "Homebase Payment"), as announced by HRG on 18 January 2016; and

·        2.8 pence per HRG Share in lieu of a final dividend in respect of HRG's financial year ended 27 February 2016 (the "Additional HRG Payment").

The amount of the Special Dividend is equal to the proposed payments by HRG described in the Agreed Terms Announcement, in which the Board of HRG indicated that it intended to make payments of these amounts to HRG Shareholders irrespective of whether or not an offer for HRG was made or completed.

Whether or not the Special Dividend is paid (in full or at all) will not affect the Offer Consideration.

Whilst there can be no guarantee that the Board of HRG will resolve to pay the Special Dividend, Sainsbury's will keep HRG informed about the progress of its Offer in order that the Board of HRG has sufficient notice of the date by which the Board of HRG should resolve to pay the Special Dividend.

Based on the Closing Price of Sainsbury's Shares of 281.5 pence on the Last Practicable Date:

·        the Offer Consideration represents an indicative value of 145.4 pence per HRG Share and values HRG's issued ordinary share capital at approximately £1.2 billion;

·        the Offer Consideration and the Special Dividend (assuming it is paid) together represent an indicative value of 173.2 pence per HRG Share and value HRG's issued ordinary share capital at approximately £1.4 billion; and

·        the Offer Consideration and the Special Dividend (assuming it is paid) together represent a premium of approximately 75 per cent. to the Closing Price of 98.7 pence per HRG Share on 4 January 2016 (being the last Business Day prior to the commencement of the Offer Period).

Assuming acceptance in full of the Offer, it is expected that HRG Shareholders will hold approximately 12 per cent. of the enlarged issued ordinary share capital of Sainsbury's (based on the existing issued ordinary share capital of Sainsbury's and HRG).

The Offer will include a Mix and Match Facility, which will allow HRG Shareholders to elect, subject to off-setting elections, to vary the proportions in which they receive New Sainsbury's Shares and cash in respect of their holdings in HRG Shares. However, the total number of New Sainsbury's Shares to be issued and the maximum aggregate amount of cash to be paid under the Offer will not be varied as a result of elections under the Mix and Match Facility. Please refer to paragraph 6 of this announcement for further details.

The Offer will be conditional upon, amongst other things, (i) Sainsbury's having acquired not less than 90 per cent. (or such lesser percentage as Sainsbury's may decide) of the HRG Shares to which the Offer relates and of the voting rights attached to those shares; and (ii) regulatory clearances being received from the FCA, the GFSC and the CMA.

3.         Background to and reasons for the Offer

Sainsbury's set out a clear strategy in November 2014 and outlined its vision to provide great quality products and services at fair prices, delivering these to customers whenever and wherever they want to shop. As part of this, in its core food business, Sainsbury's has invested in product quality, range, pricing and multiple channels to market to ensure that it maintains and grows this critical core business. By lowering prices and reducing the level of promotions, Sainsbury's has simplified its food business, improved its offer to customers and delivered efficiencies which then supports further investment in the core proposition. The Sainsbury's Directors believe Sainsbury's is making good progress particularly versus its "Big Four" supermarket peers, delivering growth in transactions and volumes in a highly competitive marketplace.

Sainsbury's is also focused on realising the benefits from its high level of footfall and customer knowledge to compete across a broad range of products and services, beyond its food heritage. A key part of the strategy is to grow the Sainsbury's clothing and general merchandise business in store and online. Sainsbury's focus for organic growth in this area is on the categories that customers buy frequently and Sainsbury's has prioritised clothing, homewares, toys and seasonal ranges. Sainsbury's has been exploring the optimisation of its retail space to develop its customer offer, including adapting its store space to increase the product range and services that are provided.

Sainsbury's is seeing strong growth in these categories supported by its design-led own label ranges such as Tu and Home Collection. Sainsbury's experience so far from having launched its clothing range online is that there is strong, nationwide demand for these ranges that it is not currently able to provide to all its customers from its store network. Consequently, in its clothing and general merchandise categories, Sainsbury's sees strong growth potential in the long term from being able to provide a full multi-channel proposition, offering Click and Collect and "fast to home" delivery.

In addition to these areas of strong organic growth, Sainsbury's has been working in partnership with HRG trialling a number of Argos concessions in Sainsbury's stores. Argos launched ten concessions in Sainsbury's supermarkets which have now been trading for an average of 38 weeks. In addition Sainsbury's has also offered Argos FastTrack Collection services in one small supermarket and two convenience stores since November 2015.

Sainsbury's customer research has shown that both Argos and Sainsbury's customers value having Argos concessions in Sainsbury's stores as they can complete more general merchandise shopping missions at the same time as they do their food and grocery shop; Argos customers have welcomed the additional convenience they get from having the Argos offer in Sainsbury's supermarkets which are easily accessible, have free parking and offer longer opening hours.

Sainsbury's has seen encouraging results from these trials, driving additional customers and sales to both Argos and Sainsbury's across the ten locations. These trials, together with the due diligence conducted in connection with the Offer, have enabled Sainsbury's to build up a strong understanding of the HRG business.

The Offer accelerates Sainsbury's strategy

The Sainsbury's Directors believe that the Offer represents an attractive opportunity to accelerate Sainsbury's strategy across food, clothing and general merchandise and that the combination of Sainsbury's and HRG is an attractive proposition for the customers and shareholders of both companies, establishing a platform for long-term value creation.

In particular, the Sainsbury's Directors believe that the Offer will deliver the following benefits:

Leading food and non-food retailer of choice for customers

·          Both the Sainsbury's and the HRG brands represent trust, quality, value and service, with strong foundations.

·          The combination will bring together two of the UK's leading retail businesses, with complementary product offers, focused on delivering quality products and services at fair prices, through an integrated, multi-channel proposition.

·          Sainsbury's and HRG share similar cultures and values, focused on serving the needs of customers whenever and wherever they want to shop.

Deliver profitable sales growth by offering customers a winning combination of location, range, speed and flexibility

·          The Combined Group will be able to offer customers the right combination of product range, location, speed and flexibility across food, clothing and general merchandise, making each business's core proposition more accessible and convenient for all customers.

·          Argos concessions or collection services in Sainsbury's stores will increase its reach and customer base while at the same time reducing Argos operating costs.

·          Sainsbury's has detailed knowledge of, and direct connection with, its customers who account for around 25 million transactions a week, and the Combined Group will be able to enhance and benefit from this to drive sales and loyalty.

Optimises the use of combined retail space

·          The combination will optimise the use of the combined retail space, by rolling out the Argos proposition via concessions into the Sainsbury's store network, enhancing convenience for customers, increasing the attractiveness of these locations and delivering cost efficiencies.

·          Relocations of existing Argos stores into Sainsbury's supermarkets will be optimised to the extent possible to fall in line with Argos lease expiry dates to minimise costs. Relocations of Argos stores into Sainsbury's supermarkets are expected to make up approximately 55 per cent. of the Argos concessions in Sainsbury's supermarkets.

•           Approximately 50 per cent. of these are expected to move less than one mile and to a similar retail location type. In these relocations, sales are assumed to be the same as are currently seen in the existing Argos store.

•           Where the existing Argos store is relocating into a Sainsbury's supermarket which is more than one mile away or to a different retail location type, the level of sales transferred to the relocated Argos concession is assumed to be lower than that which are currently achieved in the existing Argos store.

•           Existing Argos stores have a short lease length. As of the end of the financial year ended 28 February 2015, over half of Argos leases expire within five years and on average have 4.9 years remaining.

·          Such relocations will have lower fixed operating (e.g. occupancy costs and utilities) and store labour costs when compared to standalone Argos stores:

•           Store level costs, notably store labour, occupancy costs and utilities, which are estimated to be equal to approximately 11-14 per cent. of Argos spoke sales, will be lowered in relocation concessions.

·          Infill Argos concessions (which are expected to make up approximately 45 per cent. of the concession rollout) will be opened within Sainsbury's supermarkets where there is no Argos store within three miles, or in catchments that are underserved by Argos. Infill Argos stores are expected to:

•           deliver additional sales with attractive returns on investment; and

•           create new retail roles to operate these concessions.

·          All Argos concessions in Sainsbury's supermarkets are assumed to gain additional spend from Sainsbury's customers shopping in Argos who do not currently shop in Argos.

·          Argos collection services will be offered in Sainsbury's stores which will drive additional footfall and cross selling opportunities.

·          The Combined Group will have attractively located stores across the UK and Ireland, offering access to a wide range of product categories including food and grocery, clothing, homewares, toys, stationery, electrical goods, furniture and other general merchandise.

Multi-channel capabilities

·          HRG is shaping the future of shopping in the UK through digital retail leadership and multi-channel capability. It is a leader in online and mobile retailing and the Sainsbury's Directors believe that a combination of Sainsbury's and HRG will significantly enhance Sainsbury's digital capability in food, clothing and general merchandise.

·          The Offer will bring together multi-channel capabilities including digital, store and delivery networks to provide fast, flexible and reliable product fulfilment to store or to home across a wide range of food and non-food products.

·          The Combined Group's performance will be enhanced by its ability to offer customers a wide range of products that meet their everyday needs, available in stores, to Click and Collect or delivered to home at a time that suits the customer.

A financial services proposition with consumer-centric services

·          The Offer is expected to create a financial services proposition that will provide a wider range of customer-centric services including credit cards, store credit, loans, deposits, insurance and ATMs.

Deliver revenue and cost synergy potential

·          The Offer is expected to deliver revenue synergy potential through the ability to sell to each other's customers, including the operation of Argos concessions within Sainsbury's stores, the sale of Sainsbury's products and services to Argos' customers and leveraging Argos infrastructure.  

·          The Offer is expected to provide cost synergy potential through property rationalisation, scale benefits and operational efficiencies, as outlined in paragraph 4 below. Based on the trials undertaken with Argos, Sainsbury's has confidence in the ability of the Offer to deliver synergies with limited integration risk, driven by property rationalisation, which is a core Sainsbury's strength.

4.         Financial benefits and effects of the Offer

Synergy potential

The Sainsbury's Directors believe that, as a direct result of the Offer, the Combined Group will generate attractive synergies and create additional shareholder value.

The Agreed Terms Announcement included statements of estimated cost savings and synergies expected to arise from the Offer.

Sainsbury's has been able, as a result of further analysis and its integration planning work following undertaking due diligence on the HRG Group, to revise the initial synergy estimate as set out below (the "Revised Quantified Financial Benefits Statement"). The Sainsbury's Directors believe that these cost savings and synergies further enhance the attractiveness of the Offer.

The Sainsbury's Directors now expect a higher level of EBITDA synergies in the third full year after Completion of not less than £160 million. This represents an increase of one third compared to the previous estimate of not less than £120 million EBITDA synergies. This higher EBITDA synergy estimate results from (i) an increase of £15 million in the estimated synergies from Argos concessions due to an increase in the number of concession opportunities and increased occupancy cost savings, offset by a reduction in the estimated Sainsbury's food and grocery halo sales; (ii) an increase of £30 million in the estimated cost synergies from central and support functions savings as well increased buying cost savings; and (iii) a decrease of £5 million in other revenue synergies as a result of revised assumptions on clothing, homewares and seasonal revenue synergies. (3)

Note:

(3)           Numbers refer to synergies in the third full year after Completion.

Approximately 15 per cent. of the estimated EBITDA synergies are expected to be realised in the first full year after Completion, approximately 65 per cent. in the second full year after Completion and 100 per cent. in the third full year after Completion.

The constituent elements of quantified synergies, which are in addition to savings previously targeted by Sainsbury's and HRG separately, comprise the following:

·          approximately 45 per cent. of the identified synergies (approximately £75 million) are expected to be generated from Argos concessions, arising from (i) cost savings generated from the relocation of certain existing Argos stores into concessions in Sainsbury's stores, and (ii) revenue gains from new concessions within Sainsbury's stores, including but not limited to cross-selling opportunities and the expansion of Click and Collect desks. Of these synergies, approximately 15 per cent. are expected to be realised in the first full year after Completion, approximately 60 per cent. in the second full year after Completion and 100 per cent. in the third full year after Completion;

·          approximately 45 per cent. of the identified synergies (approximately £70 million) are expected to be cost synergies generated by removing duplication and overlap from both central and support functions at Sainsbury's and HRG. There are also benefits to the Combined Group in purchasing of goods for resale and goods not for resale from sharing best practice and increased scale. Of these synergies, approximately 15 per cent. are expected to be realised in the first full year after Completion, approximately 65 per cent. in the second full year after Completion and 100 per cent. in the third full year after Completion; and

·          the remainder of the identified synergies (approximately £15 million) are expected to be further revenue synergies, principally from the sale of Sainsbury's clothing, homewares and seasonal and leisure ranges through the existing Argos network together with the roll-out of Sainsbury's ATMs to Argos locations and the sale of Habitat products through Sainsbury's channels. Of these synergies, approximately 25 per cent. are expected to be realised in the first full year after Completion, approximately 80 per cent. in the second full year after Completion and 100 per cent. in the third full year after Completion.

It is expected that the realisation of the identified synergies will require one-off exceptional costs of approximately £130 million, of which approximately 50 per cent. are expected to be incurred in the first full year after Completion, 20 per cent. in the second full year after Completion and 30 per cent. in the third full year after Completion.

It is also expected that incremental capital expenditure of approximately £140 million will be incurred in the three years following Completion, relating to store fit-out expenditure. Approximately 30 per cent. of this capital expenditure is to be incurred in the first full year after Completion, 40 per cent. in the second full year after Completion and 30 per cent. in the third full year after Completion.   

The synergies referred to above are expected to be recurring and are expected to arise as a direct result of the Offer and could not be achieved independently of the Offer. The synergies are also stated net of anticipated dis-synergies, which arise principally from lost sales in the Argos stores moving more than one mile or changing to a different retail location type as well as estimated cannibalisation impact of new infill Argos concessions. For the avoidance of doubt, the EBITDA impact of the synergies as set out above already reflects the impact of these identified dis-synergies.

Please refer to Appendix 3 for further detail on the above Revised Quantified Financial Benefits Statement. The Revised Quantified Financial Benefits Statement has been reported on under the Takeover Code by Deloitte LLP, Sainsbury's reporting accountant, and by Morgan Stanley and UBS, Sainsbury's financial advisers, as set out in Part B and Part C of Appendix 3 of this announcement. References in this announcement to the Revised Quantified Financial Benefits Statement should be read in conjunction with Appendix 3.

Sainsbury's has identified a number of initiatives which are expected to create additional benefits that are not included in the Revised Quantified Financial Benefits Statement, including:

·          utilisation of the Sainsbury's brand, marketing and loyalty database to increase Argos sales;

·          utilisation of Argos systems to manage Sainsbury's general merchandise (and thereby improving availability performance and overall inventory efficiency); and

·          potential synergies within the Argos Financial Services business.

Financial effects

The Sainsbury's Directors expect the Offer will result in double digit earnings per share accretion (excluding the effects of implementation costs) and a low to mid teens return on invested capital (inclusive of implementation costs) (4) in the third full year following Completion. (5)

Notes:

(4)           Return on invested capital is defined as acquired post-tax EBIT plus post-tax synergies divided by purchase price plus implementation costs net of tax.

(5)           These statements are not, and shall not be construed as, profit forecasts.

5.         HRG Board's recommendation

Prior to the Agreed Terms Announcement, the Board of HRG had indicated to Sainsbury's that it would be willing to recommend Sainsbury's offer, if made, on the financial terms set out therein. As a result of the subsequent announcement by Steinhoff of its possible offer for HRG, as of the date of this announcement, Sainsbury's has not received the HRG Board's recommendation of its Offer. The Board of Sainsbury's will continue to discuss the merits of its Offer with the Board of HRG and seek its recommendation of the Offer in due course.

6.         Mix and Match Facility

HRG Shareholders (other than certain persons in the United States and other Restricted Jurisdictions) may elect, subject to availability, to vary the proportions in which they receive New Sainsbury's Shares and cash in respect of their holdings in HRG Shares. However, the total number of New Sainsbury's Shares to be issued and the maximum aggregate amount of cash to be paid under the Offer will not be varied as a result of elections under the Mix and Match Facility. Accordingly, satisfaction of elections made by HRG Shareholders under the Mix and Match Facility will depend on the extent to which other HRG Shareholders make offsetting elections. 

To the extent that elections cannot be satisfied in full, they will be scaled down on a pro‑rata basis. As a result, HRG Shareholders who make an election under the Mix and Match Facility will not necessarily know the exact number of New Sainsbury's Shares or the amount of cash they will receive until settlement of the consideration due to them under the Offer. The Mix and Match Facility is conditional upon the Offer becoming or being declared unconditional in all respects.

Elections under the Mix and Match Facility will not affect the entitlements of those HRG Shareholders who do not make such elections.

Further details in relation to the Mix and Match Facility will be contained in the Offer Document and accompanying Form of Acceptance.

7.         Financing of the Offer

Sainsbury's intends to finance the cash consideration payable to HRG Shareholders pursuant to the Offer through its existing debt facilities and resources, to be entirely refinanced at a later date through the proposed transfer of HRG's Financial Services business to Sainsbury's Bank. This would have the consequence of lowering the Combined Group's lease adjusted leverage (excluding Sainsbury's Bank) relative to the standalone lease adjusted leverage of the Sainsbury's Group (excluding Sainsbury's Bank).

Sainsbury's entered into an amendment and restatement agreement dated 18 March 2016 (the "Amendment and Restatement Agreement") making certain amendments to the existing facility agreement dated 5 May 2015 between Sainsbury's, Sainsbury's Supermarkets Limited as guarantor, HSBC Bank plc as facility agent, HSBC Corporate Trustee Company (UK) Limited as security agent and the financial institutions listed therein to (i) permit the Offer and (ii) allow Sainsbury's to use a proportion of the facilities to finance the cash consideration payable under the Offer.

Morgan Stanley and UBS are satisfied that sufficient resources are available to Sainsbury's to satisfy in full the cash consideration payable to HRG Shareholders pursuant to the terms of the Offer.

Further information on the financing of the Offer will be set out in the Offer Document.

8.         Information relating to the Sainsbury's Group

Founded in 1869, as at 12 March 2016 the Sainsbury's Group operated 1,374 stores - including 601 supermarkets and 773 convenience stores, and employed approximately 165,156 colleagues across the UK. With around 25 million customer transactions every week, the Sainsbury's Group's focus is on providing great quality products at fair prices. The Sainsbury's Group sells food, clothing and general merchandise products to customers across supermarkets, convenience stores and online and also sells fuel from petrol filling stations adjacent to some of its stores. Sainsbury's Bank offers accessible financial products such as credit cards, insurance and personal loans that reward customers who both bank and shop with the Sainsbury's Group. Strong, well-established values are integral to the Sainsbury's Group's success in helping customers Live Well for Less.

J Sainsbury plc is the holding company of the Sainsbury's Group. Sainsbury's was listed on the London Stock Exchange in 1973. As at the Last Practicable Date, Sainsbury's had a market capitalisation of £5,417 million.

For the 52-week period ended 14 March 2015, the Sainsbury's Group generated revenue of £23,775 million excluding VAT, including fuel, and delivered underlying profit before tax of £681 million. As at 14 March 2015, the Sainsbury's Group had total assets of £16,537 million.

9.         Information relating to the HRG Group

The HRG Group consists of one of the most recognised retailing brands in the UK home and general merchandise sector, Argos, supported by its Financial Services business.

The HRG Group offers over 57,000 products (6) through Argos and operates a nationwide distribution network across multiple distribution centres and 845 stores (7). The HRG Group offers immediacy and convenience through a multi-channel offer.  Customers can place orders in-store, online, on the phone and through smartphone and tablet apps, with collection either immediately in-store, during a specified delivery slot that day through FastTrack Delivery or at specified delivery times for larger items such as appliances and furniture.

In October 2012, Argos outlined a five-year transformation plan to reinvent itself as a digital retail leader, transforming from a catalogue-led business to a digital-led business. According to HRG this transformation plan addresses competitive challenges, and aims to exploit emerging market opportunities and restore sustainable growth.

Home Retail Group plc is the holding company of Argos and was listed on the London Stock Exchange in 2006. On 27 February 2016, HRG completed the Homebase Sale.  As at the Last Practicable Date, HRG had a market capitalisation of £1,474 million.

For the 52-week period ended 28 February 2015, the HRG Group (excluding Homebase, but without adjustments for centrally held functions which were sold as part of the Homebase Sale) generated revenue of £4,231.1 million and delivered benchmark operating profit of £109.7 million. As at 29 August 2015, on an unaudited pro forma basis, the HRG Group (excluding Homebase) had total assets of £3,514.4 million (8).

Notes:

(6)           Based on HRG's Investor Pack - October 2015.

(7)           Based on HRG's trading statement for the final eight-week trading period for the financial year ended 27 February 2016, published on 10 March 2016.

(8)           Based on the pro forma statement of net assets in HRG's circular dated 2 February 2016.

10.       Current Trading of Sainsbury's

Q4 financial highlights

On 15 March 2016, Sainsbury's published a trading statement in respect of the final nine-week trading period for the financial year ended 12 March 2016, in which it highlighted the following:

"Positive like-for-like Retail sales growth (excl. fuel) for the first quarter in over two years; total Retail sales for fourth quarter up 1.2 per cent (excl. fuel), up 0.5 per cent (inc. fuel); like-for-like Retail sales for fourth quarter up 0.1 per cent (excl. fuel), down 0.4 per cent (inc. fuel); supermarkets delivering like-for-like transaction and volume growth; and a commitment to phase out vast majority of multi-buy promotions across grocery products."

"We have delivered a strong performance this quarter. Our supermarkets recorded both like-for-like transaction and volume growth and we continue to exceed our internal metrics for service and availability. We also maintained our market share in the quarter. The market will remain competitive as food deflation continues to impact sales growth.

We are progressing well with our quality investment in 3,000 own-brand products. The New Year is traditionally a time when customers focus on healthy eating and to cater for this demand we launched a number of vegetable-based product innovations including boodles (butternut squash noodles) and courgetti (spiralized courgette) which are proving extremely popular with our customers. We also introduced new lines to our healthier bread range including the rye loaf and sprouting grain boule, both of which are high in fibre.

Our promotional participation levels continue to reduce year-on-year, running at an average of 28 per cent for the quarter. Customers have told us that multi-buy promotions do not meet their shopping needs today. They are often viewed as confusing, create storage challenges and unnecessary waste. In response to this, we recently announced that we will be phasing out the vast majority of our multi-buy promotions across grocery products by August this year. We will continue to simplify our trading strategy in favour of lower regular prices. We are also committed to reducing waste and in January we launched our Waste less, Save more initiative in Swadlincote, Derbyshire. The town will receive £1 million to trial the latest technology and innovations in reducing household waste.

Our in-store operational metrics for service and availability remain excellent and are beating our internal targets. Year-to-date we have won 16 Grocer 33 Service & Availability awards, ahead of our run-rate in the previous year. We opened 16 convenience stores including our second micro store in Richmond. Groceries online sales grew at nearly 14 per cent and orders by nearly 19 per cent. We simplified our online nectar redemption process, making it easier for customers to redeem their points, and improving the online customer experience.

Clothing delivered over ten per cent growth and we introduced our 22nd Gok Wan collection which had its best ever February launch. Entertainment also performed well, with nearly 11 per cent growth driven by some big releases in the quarter. Sainsbury's Bank continued its good performance with 15 per cent volume growth in Insurance new business and 12 per cent growth in Travel Money in-store transaction volumes.

We have traded well this year and are making excellent progress implementing our strategy. The market will remain competitive but we are confident that we will continue to outperform our major peers."

Sainsbury's Profit Estimate

The Sainsbury's Group made a statement at the time of its second quarter trading statement for the 16 weeks to 26 September 2015, announced on 30 September 2015, that should current market trends continue, it expected its full year (that is, for the 52 weeks ended 12 March 2016) underlying profit before tax (defined as profit before tax before any profit or loss on the disposal of properties, investment property fair value movements, retailing financing fair value movements, IAS 19 pension financing element and defined benefit pension scheme expenses, acquisition adjustments and one-off items that are material and infrequent in nature, but after the coupons on the perpetual subordinated capital securities and perpetual subordinated convertible bonds) ("UPBT") to be moderately ahead of its published consensus profit (which, at the time of such announcement, was £548 million) (the "Sainsbury's Profit Estimate"). The Sainsbury's Directors have considered the Sainsbury's Profit Estimate and confirm that it remains valid as at the date of this announcement.

The above statement constitutes a profit estimate for the purposes of Rule 28 of the Takeover Code.

Pursuant to Rule 28.1(c) of the Takeover Code, the Sainsbury's Profit Estimate is set out in full in Appendix 4 to this announcement, together with the basis of preparation and confirmations by the Sainsbury's Directors.

11.       Management, employees and locations

Both Sainsbury's and HRG have large numbers of committed and talented colleagues who work hard to ensure that customers receive the best possible levels of customer service and quality. The Sainsbury's Board recognises how important such colleagues are to the success of the Combined Group.

HRG's scale, multi-channel expertise and competency across a broad range of general merchandise product markets as well as its consumer financial services is highly complementary to Sainsbury's non food expertise in clothing and general merchandise. Sainsbury's therefore anticipates that the future leadership team will be comprised of senior leaders from both HRG and Sainsbury's, with a view to retaining HRG's expertise in digital, channels, product markets and financial services. The leadership team will be determined in due course and in consultation with HRG's senior leadership.

In order to achieve some of the expected benefits of the combination of the Sainsbury's Group and the HRG Group, it will be necessary to perform a detailed review of how best to combine the two groups.  The synergy work carried out to date has confirmed the potential to generate cost savings for the Combined Group in areas such as reducing headcount in overlapping corporate and support functions where there may be duplication. However, at this stage Sainsbury's has not yet fully developed proposals as to how such headcount reductions will be implemented.

Integration planning has begun but more detailed consideration will need to be undertaken and will be subject to engagement and (if applicable) consultation with appropriate stakeholders, including employee representative bodies and unions in accordance with Sainsbury's legal obligations. Sainsbury's intends that there will be a dedicated team responsible for leading the integration and that this team will be made up of individuals from both HRG and Sainsbury's.

Sainsbury's confirms that the existing contractual and statutory employment rights, including pension rights, of all employees of Sainsbury's and HRG will be fully observed following Completion. Further information in respect of employees and pensions will be set out in the Offer Document.

No proposals have yet been made on the terms of any incentivisation arrangements for relevant employees or managers.

12.       Pension arrangements

Sainsbury's and the trustee of the Home Retail Group Pension Scheme (the "HRG Trustee") have reached an agreement in relation to the future funding of the Home Retail Group Pension Scheme, the terms of which will take effect conditional on Completion. The key terms are:

·          An agreed basis for the statutory valuation in relation to the Home Retail Group Pension Scheme as at 31 March 2015; an increase in the level of deficit contributions payable by Argos under the Home Retail Group Pension Scheme's statutory schedule of contributions (to £40 million per annum, payable quarterly); and a lump sum payment of £50 million, to be made following Completion. (These contributions are in addition to the lump sum contributions totalling £50 million agreed by HRG with the HRG Trustee in connection with the Homebase Sale, £26 million of which has already been paid to the Home Retail Group Pension Scheme.)

·          A commitment from Sainsbury's to stand behind Argos' obligations under the statutory schedule of contributions and to make a lump sum payment to the Home Retail Group Pension Scheme (of up to £470 million) if there is an insolvency of Sainsbury's or Argos. This commitment will replace similar commitments currently in place from HRG (which will fall away on Completion) and, subject to certain conditions, will be reset at the next two statutory valuations in relation to the scheme (expected to have effective dates in 2018 and 2021). 

·          The grant of an additional £37.5 million of security over freehold assets in favour of the HRG Trustee (resulting in £75 million in total, inclusive of the £37.5 million of security agreed with HRG in the connection with the Homebase Sale).

Sainsbury's understands that the Home Retail Group Pension Scheme is closed to the future accrual of benefits. Sainsbury's has no intention to re-open the scheme to benefit accrual or new entrants.

The HRG Trustee has confirmed to Sainsbury's in writing that, having taken advice, it is satisfied that it does not consider the Offer, on the terms described herein, to be materially detrimental to the financial support in place for the Home Retail Group Pension Scheme.

13.       Confidentiality Agreement

Sainsbury's and HRG have entered into a confidentiality agreement dated 3 February 2016 pursuant to which each of Sainsbury's and HRG has undertaken to keep certain information relating to the other party confidential and not to disclose such information to third parties, except to certain permitted disclosees for the purposes of evaluating the Offer, the pension trustees of Sainsbury's and HRG, or if required by applicable laws or regulations.

The confidentiality obligations of each party under the Confidentiality Agreement will terminate upon the Offer becoming or being declared unconditional in all respects or, in the event that the Offer does not become unconditional in all respects, the date that is six months after the Offer lapses or is withdrawn.

14.       HRG Employee Share Plans

Sainsbury's will make appropriate proposals to participants in the HRG Employee Share Plans in due course. Participants in the HRG Employee Share Plans will be contacted separately regarding the effect of the Offer on their rights under the HRG Employee Share Plans and with the details of Sainsbury's appropriate proposals. Further details of the terms of such proposals will be included in the Offer Document.

The Offer will extend to any HRG Shares which are unconditionally allotted, issued or transferred to satisfy the exercise of existing options or vesting of awards under the HRG Employee Share Plans prior to the date on which the Offer closes for acceptance (or such earlier date as Sainsbury's may, subject to the Takeover Code or with the consent of the Panel, decide).

The participants in the HRG Share Incentive Plan will be treated in the same way as the other HRG Shareholders.

15.       Dividends and dividend policy

The Sainsbury's Directors expect that, following Completion, the Combined Group will pay dividends in line with Sainsbury's existing dividend policy of two times cover.

16.       Disclosure of interests in HRG Group

Sainsbury's made a public Opening Position Disclosure in respect of the interests in the relevant securities of HRG held by Sainsbury's and its concert parties on 19 January 2016 (the "Sainsbury's Opening Position Disclosure"). As set out in the Sainsbury's Opening Position Disclosure, a close relative of David Tyler, the Chairman of Sainsbury's, holds 355 HRG Shares.

Save as disclosed in this announcement and in the Sainsbury's Opening Position Disclosure, as at 16 March 2016, none of Sainsbury's nor, so far as Sainsbury's is aware, any person acting or deemed to be acting in concert with Sainsbury's had:

(a)        any interest in, or right to subscribe for, any relevant securities of HRG;

(b)        any short position in (whether conditional or absolute and whether in the money or otherwise), including any short position under a derivative, any agreement to sell or any delivery obligation or right to require another person to purchase or take delivery of, any relevant securities of HRG; or

(c)        borrowed or lent, or entered into any financial collateral arrangements or dealing arrangements in respect of, any relevant securities of HRG.

17.       Conditions

The Offer will be subject to the Conditions and certain further terms as set out in Appendix 1 to this announcement and to the full terms and conditions which will be set out in the Offer Document and the Form of Acceptance. The Conditions include, amongst other things: (i) valid acceptances having been received in respect of not less than 90 per cent. (or such lesser percentage as Sainsbury's may decide) of the HRG Shares to which the Offer relates and of the voting rights attached to those shares; and (ii) regulatory clearances being received from the FCA, the GFSC and the CMA.

18.       Squeeze-out, delisting, cancellation of trading and re-registration

If Sainsbury's receives acceptances under the Offer in respect of, and/or otherwise acquires, 90 per cent. or more of the HRG Shares by nominal value and voting rights attaching to such shares to which the Offer relates, Sainsbury's intends to exercise its rights pursuant to the provisions of Chapter 3 of Part 28 of the 2006 Act to squeeze‑out the remaining HRG Shares in respect of which the Offer has not been accepted.

After the Offer becomes or is declared unconditional in all respects and Sainsbury's has by virtue of its shareholdings and acceptances of its Offer acquired, or agreed to acquire, issued share capital carrying at least 75 per cent. of the voting rights of HRG, Sainsbury's intends to procure the making of an application by HRG for cancellation, respectively, of the trading in HRG Shares on the London Stock Exchange's main market for listed securities and of the listing of HRG Shares on the Official List. A notice period of not less than 20 Business Days prior to the cancellation will commence either on the date on which Sainsbury's has obtained 75 per cent. or more of the voting rights as described above or on the first date of issue of squeeze-out notices under Chapter 3 of Part 28 of the 2006 Act. Delisting would significantly reduce the liquidity and marketability of any HRG Shares not assented to the Offer.

It is also proposed that, following the Offer becoming unconditional in all respects and after the HRG Shares are delisted, HRG will be re‑registered as a private company under the relevant provisions of the 2006 Act.

19.       Prospectus

Sainsbury's will be required to produce the Prospectus in connection with the issue of the New Sainsbury's Shares. The Prospectus will contain information relating to the Sainsbury's Group, the HRG Group and the New Sainsbury's Shares. The Prospectus will be published at or around the same time as the Offer Document is posted to HRG Shareholders.

20.       Admission to the Official List and to trading on the London Stock Exchange and dealings in New Sainsbury's Shares

Application will be made to the FCA and the London Stock Exchange for the New Sainsbury's Shares to be admitted to the premium segment of the Official List and to trading on the London Stock Exchange's main market for listed securities, respectively.  It is expected that Admission will become effective and that dealings for normal settlement in the New Sainsbury's Shares will commence on the London Stock Exchange at 8.00 a.m. on the first Business Day following the date on which the Offer becomes or is declared unconditional in all respects.

21.       Fractional entitlements

Fractions of New Sainsbury's Shares will not be allotted or issued to HRG Shareholders and entitlements will be rounded down to the nearest whole number of New Sainsbury's Shares and all fractions of New Sainsbury's Shares will be aggregated and sold in the market as soon as practicable after the Offer becomes or is declared unconditional in all respects. The net proceeds of such sale (after deduction of all expenses and commissions incurred in connection with the sale) will be distributed in due proportions to HRG Shareholders who would otherwise have been entitled to such fractions, save that individual entitlements to amounts of less than £5 will be retained for the benefit of the Combined Group.

22.       Documents on website and availability of hard copies

Copies of the following documents required to be published pursuant to Rule 26.2 of the Takeover Code will be published on Sainsbury's website at http://www.j-sainsbury.co.uk/investor-centre/disclaimer/ by no later than noon (London time) on the Business Day following this announcement:

(a)        this announcement;

(b)        the Confidentiality Agreement; and

(c)        the Amendment and Restatement Agreement.

23.       Overseas shareholders

The release, publication or distribution of this announcement in or into jurisdictions other than the UK and the availability of the Offer to HRG Shareholders who are not resident in the UK or who are subject to the laws and/or regulations of another jurisdiction (including the ability of such HRG Shareholders to accept the Offer and/or to execute and deliver a Form of Acceptance) may be restricted by the laws and/or regulations of those jurisdictions. Therefore any persons who are not resident in the UK or who are subject to the laws and/or regulations of any jurisdiction other than the UK should inform themselves about, and observe, any applicable legal or regulatory requirements. HRG Shareholders who are in any doubt regarding such matters should consult an appropriate independent professional adviser in the relevant jurisdiction without delay.

24.       Reserving the right to proceed by way of a Scheme

Sainsbury's reserves the right to implement the Acquisition by way of a Scheme (with the consent of the Panel). In such an event, the terms of the Acquisition would be substantially the same as those of the Offer, subject to appropriate amendments, including that the Homebase Payment and the Additional HRG Payment would be structured as return of capital (the "Proposed Capital Returns") rather than a Special Dividend. The Acquisition would be implemented by way of a three-step process as follows:

·        Step 1: Under the terms of the Scheme, all HRG Shares would be cancelled in consideration for which HRG Shareholders would receive newly issued shares in a newly incorporated company ("New TopCo" and "New TopCo Shares").

·        Step 2: Following the Scheme becoming effective, New TopCo's share capital would be reduced through a Court procedure (the "New TopCo Capital Reduction") and the Proposed Capital Returns would be paid to New TopCo shareholders (i.e. former HRG Shareholders).

·        Step 3: Upon the New TopCo Capital Reduction becoming effective, the New TopCo Shares would be transferred to Sainsbury's pursuant to mandatory transfer provisions under the articles of association of New TopCo, in consideration for the Offer Consideration.

The precise steps of the Scheme and the New TopCo Capital Reduction would be set out in the Scheme Document. Sainsbury's reserves the right to implement the Acquisition by way of a transfer scheme under Part 26 of the 2006 Act or through different steps and processes (with the consent of the Panel, if required).

25.       General

The HRG Shares will be acquired pursuant to the Offer with full title guarantee, fully paid and free from all liens, charges, equities, encumbrances, rights of pre‑emption and any other interests of any nature whatsoever and together with all rights now or hereafter attaching thereto, including without limitation voting rights and the right to receive and retain in full all dividends and other distributions (if any) declared, made or paid on or after the date of this announcement, other than the Special Dividend.

If any dividend or other distribution is announced, declared, made, paid or becomes payable by HRG in respect of the HRG Shares on or after the date of this announcement and prior to the date on which the Offer becomes or is declared unconditional in all respects, other than or in excess of the Special Dividend, Sainsbury's reserves the right to reduce the value of the Offer Consideration (including, for the avoidance of doubt, by reducing the cash element of the Offer Consideration and/or adjusting the Exchange Ratio) by the amount of all or part of the dividend or other distribution, or all or part of the amount in excess of the Special Dividend, that has been announced, declared, made, paid or become payable. In calculating the amount of any such reduction, the value of New Sainsbury's Shares will be calculated by reference to the Closing Price of Sainsbury's Shares on the last trading day before Sainsbury's announcement of a reduction in the Offer Consideration.

The New Sainsbury's Shares will be issued credited as fully paid and will rank pari passu in all respects with the Existing Sainsbury's Shares from the date of issue, save that they will not participate in any dividend payable by Sainsbury's with reference to a record date prior to the date on which the Offer becomes or is declared unconditional in all respects.

This announcement is not intended and does not constitute, or form part of, any offer, invitation or the solicitation of an offer to purchase, otherwise acquire, subscribe for, sell or otherwise dispose of any securities, or the solicitation of any vote or approval in any jurisdiction, pursuant to the Offer or otherwise. The New Sainsbury's Shares are not being offered to the public by means of this announcement. HRG Shareholders are advised to read carefully the Prospectus, the Offer Document and (in respect of HRG Shareholders who hold HRG Shares in certificated form) the Form of Acceptance once these have been despatched. Any decision in respect of the Offer and related matters should be made only on the basis of the information contained in the Offer Document and the Prospectus.

The New Sainsbury's Shares to be issued pursuant to the Offer have not been, and will not be, listed on any stock exchange other than the London Stock Exchange and have not been, and will not be, registered under the US Securities Act or under any laws or with any securities regulatory authority of any state, district or other jurisdiction, of the United States, nor have clearances been, nor will they be, obtained from the securities commission or similar authority of any province or territory of Canada and no prospectus has been, or will be, filed, or registration made, under any securities law of any province or territory of Canada, nor has a prospectus in relation to the New Sainsbury's Shares been, nor will one be, lodged with, or registered by, the Australian Securities and Investments Commission, nor have any steps been taken, nor will any steps be taken, to enable the New Sainsbury's Shares to be offered in compliance with applicable securities laws of Japan and no regulatory clearances in respect of the New Sainsbury's Shares have been, or will be, applied for in any other jurisdiction. Accordingly, unless an exemption under relevant securities laws is available, the New Sainsbury's Shares are not being, and may not be, offered, sold, resold, delivered or distributed, directly or indirectly, in, into or from the United States or any other Restricted Jurisdiction or any resident of the United States or any other Restricted Jurisdiction. Neither the SEC nor any US state securities commission has approved or disapproved of the New Sainsbury's Shares, or determined if this announcement is accurate or complete. Any representation to the contrary is a criminal offence.

The Offer will be subject to the Conditions and other terms as set out in Appendix 1 to this announcement, and to the full terms and conditions which will be set out in the Offer Document and the Form of Acceptance.  The Offer Document, containing further information about the Offer and the expected timetable and (in respect of HRG Shareholders who hold HRG Shares in certificated form) the Form of Acceptance will be despatched to HRG Shareholders within 28 days of the date of this announcement or such later date as Sainsbury's decides, with the consent of the Panel. It is expected that the Prospectus, containing further information in relation to the New Sainsbury's Shares, will be published by Sainsbury's on or around the same time.

Morgan Stanley, UBS and Deloitte have each given and not withdrawn their consent to the publication of this announcement with the inclusion herein of the references to their names in the form and context in which they appear.

Morgan Stanley and UBS are acting as financial advisers to Sainsbury's for the purposes of the Offer. Clifford Chance LLP is acting as legal adviser to Sainsbury's. Deloitte is acting as reporting accountants to Sainsbury's.

Enquiries

Sainsbury's

Duncan Cooper, Investor Relations                                            Tel: +44 (0) 20 7695 4740

Louise Evans/Anna Harland, Media Relations                             Tel: +44 (0) 20 7695 7295

 

Brunswick (PR Adviser to Sainsbury's)

Katie Ioanilli/Mike Smith                                                            Tel: +44 (0) 20 7404 5959

 

Morgan Stanley (Financial Adviser to Sainsbury's)

Paul Baker                                                                                Tel: +44 (0) 20 7425 8000

Ian Hart

Nick Bishop
 

UBS (Financial Adviser to Sainsbury's)

Hew Glyn Davies                                                                      Tel: +44 (0) 20 7567 8000

Anna Richardson Brown

 

Further information

This announcement is for information purposes only. It is not intended to and does not constitute, or form part of, any offer, invitation or the solicitation of an offer to purchase, otherwise acquire, subscribe for, sell or otherwise dispose of any securities, or the solicitation of any vote or approval in any jurisdiction, pursuant to the Offer or otherwise, nor shall there be any sale, issuance or transfer of securities of Sainsbury's or HRG pursuant to the Offer or otherwise in any jurisdiction in contravention of applicable law. The Offer will be made solely by means of the Offer Document, which will contain the full terms and conditions of the Offer, including details of how to accept the Offer.

Sainsbury's will prepare and publish the Prospectus containing information about the New Sainsbury's Shares. Sainsbury's urges HRG Shareholders to read the Offer Document and the Prospectus carefully when they become available because they will contain important information in relation to the Offer and the New Sainsbury's Shares. Any decision in respect of the Offer or other response in relation to the Offer should be made only on the basis of the information contained in the Offer Document (or, in the event that the Offer is to be implemented by means of a Scheme, the Scheme Document) and the Prospectus.

This announcement is an advertisement and does not constitute a prospectus or prospectus equivalent document.

Important notices relating to financial advisers

Morgan Stanley & Co. International plc ("Morgan Stanley"), which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority in the United Kingdom, is acting as financial adviser to Sainsbury's and no-one else in connection with the Offer or any other matter referred to herein. In connection with such matters, Morgan Stanley, its affiliates and their respective directors, officers, employees and agents will not regard anyone other than Sainsbury's as their client, nor will they be responsible to any other person for providing the protections afforded to their clients or for providing advice in relation to the Offer, the contents of this announcement or any other matter referred to herein.

UBS Limited ("UBS") which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority in the UK is acting as joint financial adviser to Sainsbury's and no one else in connection with the matters set out in this announcement. In connection with such matters, UBS, its affiliates, and its or their respective directors, officers, employees and agents will not regard any other person as their client, nor will they be responsible to anyone other than Sainsbury's for providing the protections afforded to their clients or for providing advice in relation to the contents of this announcement or any other matter referred to herein.

Overseas jurisdictions

The release, publication or distribution of this announcement in or into jurisdictions other than the UK and the availability of the Offer to HRG Shareholders who are not resident in the UK or who are subject to the laws and/or regulations of another jurisdiction (including the ability of such HRG Shareholders to accept the Offer and/or to execute and deliver a Form of Acceptance) may be restricted by the laws and/or regulations of those jurisdictions. Therefore any persons who are not resident in the UK or who are subject to the laws and/or regulations of any jurisdiction other than the UK should inform themselves about, and observe, any applicable legal or regulatory requirements. Any failure to comply with the applicable restrictions may constitute a violation of the laws and/or regulations of any such jurisdiction. To the fullest extent permitted by applicable law, the companies and persons involved in the Offer disclaim any responsibility or liability for the violation of such restrictions by any person.

This announcement has been prepared for the purposes of complying with English law, the Listing Rules, the rules of the London Stock Exchange and the Takeover Code and the information disclosed may not be the same as that which would have been disclosed if this announcement had been prepared in accordance with the laws and/or regulations of jurisdiction outside the UK.

Unless otherwise determined by Sainsbury's or required by the Takeover Code, and permitted by applicable law and regulation, the Offer will not be made, directly or indirectly, in, into or from or by the use of mails or any other means or instrumentality (including, but not limited to, facsimile, e-mail or other electronic transmission, telex or telephone) of interstate or foreign commerce of, or of any facility of a national state or other securities exchange of the United States or any other Restricted Jurisdiction and the Offer may not be capable of acceptance by any such use, means, instrumentality or facilities or from within the United States or any other Restricted Jurisdiction. Accordingly, unless otherwise determined by Sainsbury's or required by the Takeover Code, and permitted by applicable law and regulation copies of this announcement and any formal documentation relating to the Offer are not being, and must not be, directly or indirectly, mailed or otherwise forwarded, distributed or sent in, into or from the United States or any other Restricted Jurisdiction and persons receiving such documents (including agents, custodians, nominees and trustees) must not mail or otherwise forward, distribute or send them in, into or from the United States or any other Restricted Jurisdiction. Any person (including, without limitation, any custodian, nominee and trustee) who would, or otherwise intends to, or who may have a contractual or legal obligation to, forward this announcement and/or the Offer Document and/or any other related document to any jurisdiction outside the UK should inform themselves of, and observe, any applicable legal or regulatory requirements of their jurisdiction.

Further details in relation to HRG Shareholders in overseas jurisdictions will be contained in the Offer Document.

Note to US holders of HRG Shares and HRG ADR Holders

The New Sainsbury's Shares to be issued pursuant to the Offer have not been, and will not be, registered under the US Securities Act. In the United States, the Offer will be made and the New Sainsbury's Shares will be offered to holders of HRG Shares and HRG ADR Holders only if an exemption from the registration requirements of the US Securities Act is available. Neither the SEC nor any US state securities commission has approved or disapproved of the New Sainsbury's Shares to be issued in connection with the Offer, or determined if this announcement is accurate or complete. Any representation to the contrary is a criminal offence in the United States.

Forward-looking statements

This announcement (including information incorporated by reference in this announcement), oral statements made regarding the Offer, and other information published by Sainsbury's and (as relevant) HRG contain statements which are, or may be deemed to be, "forward-looking statements". All statements, other than statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements are prospective in nature and are not based on historical facts, but rather on current expectations and projections of the management of Sainsbury's and (as relevant) HRG about future events, and are therefore subject to risks and uncertainties which could cause actual results, performance or events to differ materially from those expressed or implied by the forward-looking statements. The forward-looking statements contained in this announcement include statements relating to the expected effects of the Offer on the Sainsbury's Group and the Combined Group, the expected timing and scope of the Offer and other statements other than historical facts. Often, but not always, forward-looking statements can be identified by the use of forward-looking words such as "plan", "expect", "budget", "target", "aim", "scheduled", "estimate", "forecast", "intend", "anticipate", "assume" or "believe", or variations of such words and phrases or statements that certain actions, events or results "may", "could", "should", "would", "might" or "will" be taken, occur or be achieved. Sainsbury's can give no assurance that expectations reflected in the forward-looking statements will prove to be correct. By their nature, forward-looking statements involve risks (known and unknown) and uncertainties (and other factors that are in many cases beyond the control of Sainsbury's and/or (as relevant) HRG) because they relate to events and depend on circumstances that may or may not occur in the future.

There are a number of factors that could affect the future operations of the Sainsbury's Group and/or the Combined Group and that could cause actual results and developments to differ materially from those expressed or implied by such forward-looking statements. These factors include the satisfaction of the Conditions, as well as additional factors, such as: domestic and global business and economic conditions; asset prices; market related risks such as fluctuations in interest rates and exchange rates, industry trends, competition, changes in government and regulation, changes in the policies and actions of governments and/or regulatory authorities (including changes related to capital and tax), changes in political and economic stability, disruption in business operations due to reorganisation activities, interest rate, inflation and currency fluctuations, the timing impact and other uncertainties of future or planned acquisitions or disposals or combinations, the inability of the Combined Group to realise successfully any anticipated synergy benefits when the Offer is implemented, the inability of the Sainsbury's Group to integrate successfully the HRG Group's operations and programmes when the Offer is implemented, the Combined Group incurring and/or experiencing unanticipated costs and/or delays, or difficulties relating to the Offer when the Offer is implemented. Other unknown or unpredictable factors could affect future operations and/or cause actual results to differ materially from those in the forward-looking statements. Such forward-looking statements should therefore be construed in the light of such factors.

Each forward-looking statement speaks only as of the date of this announcement. Neither Sainsbury's nor any of its associates or directors, officers or advisers, provides any representation, assurance or guarantee that the occurrence of the events expressed or implied in any forward-looking statements in this announcement will actually occur. All forward-looking statements contained in this announcement are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Readers are cautioned not to place undue reliance on these forward-looking statements. Other than in accordance with their legal or regulatory obligations (including under the Takeover Code, the Listing Rules and the Disclosure and Transparency Rules of the FCA), the Sainsbury's Group is under no obligation and undertakes no obligation, and expressly disclaims any intention or obligation, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

No profit forecasts or estimates

Unless expressly stated otherwise, no statement in this announcement (including any statement of estimated synergies) is intended as a profit forecast or a profit estimate and no statement in this announcement should be interpreted to mean that earnings per Sainsbury's Share or HRG Share for the current or future financial years would necessarily match or exceed the historical published earnings per Sainsbury's Share or HRG Share.

Disclosure requirements of the Takeover Code

Under Rule 8.3(a) of the Takeover Code, any person who is interested in 1 per cent. or more of any class of relevant securities of an offeree company or of any securities exchange offeror (being any offeror other than an offeror in respect of which it has been announced that its offer is, or is likely to be, solely in cash) must make an Opening Position Disclosure following the commencement of the Offer Period and, if later, following the announcement in which any securities exchange offeror is first identified.

An Opening Position Disclosure must contain details of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any securities exchange offeror(s). An Opening Position Disclosure by a person to whom Rule 8.3(a) applies must be made by no later than 3.30 pm (London time) on the 10th Business Day following the commencement of the Offer Period and, if appropriate, by no later than 3.30 pm (London time) on the 10th Business Day following the announcement in which any securities exchange offeror is first identified. Relevant persons who deal in the relevant securities of the offeree company or of a securities exchange offeror prior to the deadline for making an Opening Position Disclosure must instead make a Dealing Disclosure.

Under Rule 8.3(b) of the Takeover Code, any person who is, or becomes, interested in 1 per cent. or more of any class of relevant securities of the offeree company or of any securities exchange offeror must make a Dealing Disclosure if the person deals in any relevant securities of the offeree company or of any securities exchange offeror. A Dealing Disclosure must contain details of the dealing concerned and of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any securities exchange offeror(s), save to the extent that these details have previously been disclosed under Rule 8. A Dealing Disclosure by a person to whom Rule 8.3(b) applies must be made by no later than 3.30 pm (London time) on the Business Day following the date of the relevant dealing.

If two or more persons act together pursuant to an agreement or understanding, whether formal or informal, to acquire or control an interest in relevant securities of an offeree company or a securities exchange offeror, they will be deemed to be a single person for the purpose of Rule 8.3.

Opening Position Disclosures must also be made by the offeree company and by any offeror and Dealing Disclosures must also be made by the offeree company, by any offeror and by any persons acting in concert with any of them (see Rules 8.1, 8.2 and 8.4).

Details of the offeree and offeror companies in respect of whose relevant securities Opening Position Disclosures and Dealing Disclosures must be made can be found in the Disclosure Table on the Takeover Panel's website at www.thetakeoverpanel.org.uk, including details of the number of relevant securities in issue, when the Offer Period commenced and when any offeror was first identified. You should contact the Panel's Market Surveillance Unit on +44 (0)20 7638 0129 if you are in any doubt as to whether you are required to make an Opening Position Disclosure or a Dealing Disclosure.

Publication on website and availability of hard copies

A copy of this announcement will be made available, subject to certain restrictions relating to persons resident in or subject to laws and/or regulations of the United States or any other Restricted Jurisdictions, on the Sainsbury's Group's website at http://www.j-sainsbury.co.uk/investor-centre/disclaimer/ by no later than 12 noon (London time) on the Business Day following this announcement. For the avoidance of doubt, neither the contents of the website nor the contents of any website accessible from hyperlinks on the website (or any other websites referred to in this announcement) are incorporated into, or form part of this announcement.

Information relating to HRG Shareholders

Please be aware that addresses, electronic addresses and certain other information provided by HRG Shareholders, persons with information rights and other relevant persons for the receipt of communications from HRG may be provided to Sainsbury's during the Offer Period as required under Section 4 of Appendix 4 of the Takeover Code.

Rounding

Certain figures included in this announcement have been subjected to rounding adjustments. Accordingly, figures shown for the same category presented in different tables may vary slightly and figures shown as totals in certain tables may not be an arithmetic aggregation of the figures that precede them.

 

Appendix 1
CONDITIONS AND FURTHER TERMS OF THE OFFER

The Offer will be subject to the applicable requirements of the Takeover Code, the Panel, the London Stock Exchange and the FCA. The Offer will be governed by English law and will be subject to the exclusive jurisdiction of the English courts. In addition, the Offer will be subject to the terms and conditions set out below and to be set out in the Offer Document and the Form of Acceptance.

Each Condition shall be regarded as a separate Condition (as the case may be) and shall not be limited by reference to any other Condition.

1.         Conditions of the Offer

Acceptance condition

(a)        valid acceptances of the Offer being received (and not, where permitted, withdrawn) by no later than 1.00 p.m. on the First Closing Date (or such later time(s) and/or date(s) as Sainsbury's may, in accordance with the Takeover Code or with the consent of the Panel, decide) in respect of not less than 90 per cent. (or such lesser percentage as Sainsbury's may decide) of the HRG Shares to which the Offer relates and of the voting rights attached to those shares, provided that this Condition 1(a) will not be satisfied unless Sainsbury's and/or any member of the Sainsbury's Group shall have acquired or agreed to acquire (whether pursuant to the Offer or otherwise), directly or indirectly, HRG Shares carrying in aggregate more than 50 per cent. of the voting rights then normally exercisable at a general meeting of HRG, including for this purpose (except to the extent otherwise agreed by the Panel) any such voting rights attaching to HRG Shares that are unconditionally allotted or issued before the Offer becomes or is declared unconditional as to acceptances whether pursuant to the exercise of any outstanding subscription or conversion rights or otherwise.

For the purposes of this Condition:

(i)         HRG Shares which have been unconditionally allotted shall be deemed to carry the voting rights they will carry upon being entered into the register of members of HRG;

(ii)        all percentages of voting rights, share capital and relevant securities are to be calculated by reference to the percentage held and in issue outside treasury; and

(iii)       the expression "HRG Shares to which the Offer relates" shall be construed in accordance with Chapter 3 of Part 28 of the 2006 Act;

Admission of New Sainsbury's Shares

(b)        (i) the FCA having acknowledged to Sainsbury's or its agent (and such acknowledgement not having been withdrawn) that the application for the admission of the New Sainsbury's Shares to the Official List with a premium listing has been approved and (after satisfaction of any conditions to which such approval is expressed to be subject ("listing conditions")) admission will become effective as soon as a dealing notice has been issued by the FCA and any listing conditions having been satisfied; and (ii) the London Stock Exchange having acknowledged to Sainsbury's or its agent (and such acknowledgement not having been withdrawn) that the New Sainsbury's Shares will be admitted to trading;

Regulatory conditions

(c)        the FCA giving notice in writing pursuant to section 189(4)(a) of FSMA, in terms reasonably satisfactory to Sainsbury's, of its approval (or being treated as having given such approval under section 189(6) of FSMA) in respect of each person (whether or not a member of the Wider Sainsbury's Group) who will acquire control or (if applicable) increase control over (as defined in sections 181 and 182 of FSMA) any member of the Wider HRG Control Group which is (or shall be as at the time the Offer becomes or is declared unconditional in all respects) a UK authorised person (as defined in section 191G(1) of FSMA), and which in either case would result from or in connection with or is contemplated by the implementation of the Offer and the FCA not having cancelled or varied, and not having notified (or intimated that it may notify) any proposal to cancel or vary, any permission (within the meaning of FSMA) held by any such authorised person at the date of this announcement;

(d)        the GFSC either giving notice in writing pursuant to The Insurance Business (Bailiwick of Guernsey) Law, 2002 (the "Insurance Law"), in terms reasonably satisfactory to Sainsbury's, of no objection or being deemed to have given such no objection pursuant to the Insurance Law, as a result of or in connection with or is contemplated by the implementation of the Offer in respect of any member of the Wider HRG Control Group which is (or shall be as at the time the Offer becomes or is declared unconditional in all respects) a GFSC licensed entity, and the GFSC not having cancelled, varied or imposed conditions on, and not having notified (or intimated that it may notify) any proposal to cancel, vary or impose conditions on, the terms of any licence held by any such GFSC licensed entity at the date of this announcement;

Merger control

(e)        the CMA deciding not to make a Phase 2 CMA Reference in respect of the Acquisition;

Other Third Party clearances

(f)         other than in respect of Conditions 1(c) to 1(e), no central bank, government or governmental, quasi‑governmental, supranational, statutory, regulatory, environmental, administrative, fiscal or investigative body, court, trade agency, association, institution, environmental body, employee representative body or any other body or person whatsoever in any jurisdiction (each a "Third Party") having given notice of a decision to take, institute, implement or threaten any action, proceeding, suit, investigation, enquiry or reference, or having required any action to be taken or otherwise having done anything or having enacted, made or proposed any statute, regulation, decision, order or change to published practice and there not continuing to be outstanding any statute, regulation, decision or order which would or might reasonably be expected to:

(i)         make the Offer, its implementation or the acquisition or proposed acquisition of any shares or other securities in, or control or management of, any member of the Wider HRG Group by any member of the Wider Sainsbury's Group void, illegal and/or unenforceable under the laws of any relevant jurisdiction, or otherwise directly or indirectly prevent, prohibit, or materially restrain, restrict, impede, challenge, delay or otherwise interfere with the implementation of, or impose additional material conditions or obligations with respect to, the Offer or the acquisition of any shares or other securities in, or control or management of, any member of the Wider HRG Group by any member of the Wider Sainsbury's Group or require amendment of the Offer;

(ii)        require, prevent or delay the divestiture or alter the terms envisaged for such divestiture by any member of the Wider Sainsbury's Group or by any member of the Wider HRG Group of all or any part of their businesses, assets or property or impose any limitation on the ability of all or any of them to conduct their businesses (or any part thereof) or to own, control or manage any of their assets or properties (or any part thereof) in each case to an extent which is material in the context of the Wider HRG Group taken as a whole or the Wider Sainsbury's Group taken as a whole or in the context of the Offer (as the case may be);

(iii)       impose any material limitation on, or result in a material delay in, the ability of any member of the Wider Sainsbury's Group directly or indirectly to acquire or hold or to exercise effectively all or any rights of ownership in respect of shares or other securities in HRG (or any member of the Wider HRG Group) or on the ability of any member of the Wider HRG Group or any member of the Wider Sainsbury's Group directly or indirectly to hold or exercise effectively any rights of ownership in respect of shares or other securities (or the equivalent) in, or to exercise management control over, any member of the Wider HRG Group in each case to an extent which is material in the context of the Wider HRG Group taken as a whole or the Wider Sainsbury's Group taken as a whole or in the context of the Offer (as the case may be);

(iv)       other than pursuant to the implementation of the Offer, require any member of the Wider Sainsbury's Group or the Wider HRG Group to acquire or offer to acquire any shares, other securities (or the equivalent) or interest in any member of the Wider HRG Group or any asset owned by any third party which is material in the context of the Wider HRG Group or the Wider Sainsbury's Group, in either case taken as a whole or in the context of the Offer;

(v)        require, prevent or delay a divestiture by any member of the Wider Sainsbury's Group of any shares or other securities (or the equivalent) in any member of the Wider HRG Group to an extent which is material in the context of the Wider HRG Group or the Wider Sainsbury's Group, in either case taken as a whole or in the context of the Offer;

(vi)       result in any member of the Wider HRG Group ceasing to be able to carry on business under any name under which it presently carries on business to an extent which is material in the context of the Wider HRG Group taken as a whole or in the context of the Offer;

(vii)      impose any limitation on the ability of any member of the Wider Sainsbury's Group or any member of the Wider HRG Group to conduct, integrate or co‑ordinate all or any part of their respective businesses with all or any part of the business of any other member of the Wider Sainsbury's Group and/or the Wider HRG Group in each case in a manner which is materially adverse to the Wider Sainsbury's Group taken as a whole and/or the Wider HRG Group, taken as a whole or in the context of the Offer; or

(viii)      except as Fairly Disclosed, otherwise affect the business, assets, value, profits, prospects or operational performance of any member of the Wider HRG Group or any member of the Wider Sainsbury's Group in each case in a manner which is adverse to and material in the context of the Wider HRG Group taken as a whole or of the obligations of any member of the Wider Sainsbury's Group in connection with the financing of the Offer or in the context of the Offer;

and all applicable waiting and other time periods (including any extensions thereof) during which any such Third Party could decide to take, institute, implement or threaten any such action, proceeding, suit, investigation, enquiry or reference or take any other step under the laws of any jurisdiction in respect of the Offer or proposed acquisition of any HRG Shares or otherwise intervene having expired, lapsed, or been terminated;

(g)        no material undertakings or assurances being sought from any member of the Wider Sainsbury's Group or any member of the Wider HRG Group by the Secretary of State or any other Third Party, except on terms reasonably satisfactory to Sainsbury's;

(h)        other than in respect of Conditions 1(c) to 1(e), all material notifications, filings or applications which are necessary or appropriate having been made in connection with the Offer and all necessary waiting and other time periods (including any extensions thereof) under any applicable legislation or regulation of any jurisdiction having expired, lapsed or been terminated (as appropriate) and all statutory and regulatory obligations in any jurisdiction having been complied with and all Authorisations which are necessary or appropriate in any jurisdiction for or in respect of the Offer or the proposed acquisition of any shares or other securities in, or control of, HRG by any member of the Wider Sainsbury's Group having been obtained in terms and in a form reasonably satisfactory to Sainsbury's from all appropriate Third Parties or (without prejudice to the generality of the foregoing) from any person or bodies with whom any member of the Wider HRG Group or the Wider Sainsbury's Group has entered into contractual arrangements and all such Authorisations which are necessary or appropriate to carry on the business of any member of the Wider HRG Group in any jurisdiction having been obtained in each case where the direct consequence of a failure to make such notification or filing or to wait for the expiry, lapse or termination of any such waiting or other time period or to comply with such obligation or obtain such Authorisation would be unlawful in any relevant jurisdiction or have a material adverse effect on the Wider HRG Group or the Wider Sainsbury's Group in each case taken as a whole or the ability of Sainsbury's to implement the Offer and all such Authorisations remaining in full force and effect at the time at which the Offer becomes otherwise unconditional in all respects and there being no notice or intimation of an intention to revoke, suspend, restrict, modify or not to renew such Authorisations;

(i)         no temporary restraining order, preliminary or permanent injunction, preliminary or permanent enjoinment, or other order threatened or issued and being in effect by a court or other Third Party which has the effect of making the Offer or any acquisition or proposed acquisition of any shares or other securities or control or management of, any member of the Wider HRG Group by any member of the Wider Sainsbury's Group, or the implementation of either of them, void, voidable, illegal and/or unenforceable under the laws of any relevant jurisdiction, or otherwise directly or indirectly prohibiting, preventing, restraining, restricting, delaying or otherwise interfering with the consummation or the approval of the Offer or any matter arising from the proposed acquisition of any shares or other securities in, or control or management of, any member of the Wider HRG Group by any member of the Wider Sainsbury's Group, in each case in a manner which is adverse to and material in the context of the Offer;

Confirmation of absence of adverse circumstances

(j)         except as Fairly Disclosed, there being no provision of any arrangement, agreement, licence, permit, franchise, lease or other instrument to which any member of the Wider HRG Group is a party or by or to which any such member or any of its assets is or may be bound, entitled or be subject or any event or circumstance which, as a consequence of the Offer or the proposed acquisition by any member of the Wider Sainsbury's Group of any shares or other securities in HRG or because of a change in the control or management of any member of the Wider HRG Group or otherwise, would or might reasonably be expected to result in, in each case to an extent which is material in the context of the Wider HRG Group taken as a whole or in the context of the Offer or to the obligations of any member of the Wider Sainsbury's Group in connection with the financing of the Offer:

(i)         any monies borrowed by, or any other indebtedness, actual or contingent of, or any grant available to, any member of the Wider HRG Group being or becoming repayable, or capable of being declared repayable, immediately or prior to its or their stated maturity date or repayment date, or the ability of any such member to borrow monies or incur any indebtedness being withdrawn or inhibited or being capable of becoming or being withdrawn or inhibited;

(ii)        the rights, liabilities, obligations, interests or business of any member of the Wider HRG Group or any member of the Wider Sainsbury's Group under any such arrangement, agreement, licence, permit, lease or instrument or the interests or business of any member of the Wider HRG Group or any member of the Wider Sainsbury's Group in or with any other firm or company or body or person (or any agreement or arrangement relating to any such business or interests) being or likely to become terminated or adversely modified or affected or any onerous obligation or liability arising or any adverse action being taken or arising thereunder;

(iii)       any member of the Wider HRG Group ceasing to be able to carry on business under any name under which it presently carries on business;

(iv)       any assets or interests of, or any asset the use of which is enjoyed by, any member of the Wider HRG Group being or falling to be disposed of or charged or any right arising under which any such asset or interest could be required to be disposed of or charged or could cease to be available to any member of the Wider HRG Group otherwise than in the ordinary course of business;

(v)        the creation or enforcement of any mortgage, charge or other security interest over the whole or any part of the business, property or assets of any member of the Wider HRG Group or any such mortgage, charge or other security interest (whenever created, arising or having arisen), becoming enforceable;

(vi)       the business, assets, value, financial or trading position, profits, prospects or operational performance of any member of the Wider HRG Group being prejudiced or adversely affected;

(vii)      the creation or acceleration of any liability (actual or contingent) by any member of the Wider HRG Group; or

(viii)      any liability of any member of the Wider HRG Group to make any severance, termination, bonus or other payment to any of its directors or other officers;

No material transactions, claims or changes in the conduct of the business of the HRG Group

(k)        since 28 February 2015 and except as Fairly Disclosed, no member of the Wider HRG Group having:

(i)         save as between HRG and its wholly‑owned subsidiaries or between such wholly‑owned subsidiaries and save for the issue or transfer out of treasury of HRG Shares on the exercise of options or vesting of awards granted before the date of this announcement in the ordinary course, issued or agreed to issue or authorised or proposed or announced its intention to authorise or propose the issue of additional shares of any class, or securities or securities convertible into, or exchangeable for, or rights, warrants or options to subscribe for or acquire, any such shares or convertible securities or transferred or sold or agreed to transfer or sell or authorised or proposed the transfer or sale of HRG Shares out of treasury;

(ii)        recommended, declared, paid or made or proposed to recommend, declare, pay or make any bonus, dividend or other distribution (whether payable in cash or otherwise) other than to HRG or one of its wholly‑owned subsidiaries;

(iii)       save as between HRG and its wholly‑owned subsidiaries or between such wholly‑owned subsidiaries, merged with (by statutory merger or otherwise) or demerged from or acquired any body corporate, partnership or business or acquired or disposed of, or, other than in the ordinary course of business, transferred, mortgaged or charged or created any security interest over, any assets or any right, title or interest in any asset (including shares and trade investments) or authorised, proposed or announced any intention to do so;

(iv)       save as between HRG and its wholly‑owned subsidiaries or between such wholly‑owned subsidiaries, made, authorised, proposed or announced an intention to propose any change in its loan capital;

(v)        issued, authorised or proposed or announced an intention to authorise or propose the issue of, or made any change in or to the terms of, any debentures or (save in the ordinary course of business and save as between HRG and its wholly‑owned subsidiaries or between such wholly‑owned subsidiaries) incurred or increased any indebtedness or become subject to any contingent liability to an extent which is material in the context of the Wider HRG Group or in the context of the Offer;

(vi)       entered into, varied, authorised or proposed entry into or variation of, or announced its intention to enter into or vary, any material contract, transaction, arrangement or commitment (whether in respect of capital expenditure or otherwise) (otherwise than in the ordinary course of business) which is of a long term, unusual or onerous nature, or which involves or could reasonably be expected to involve an obligation of a nature or magnitude which is, in any such case, material in the context of the Wider HRG Group or in the context of the Offer, or which is or is reasonably likely to be restrictive on the business of any member of the Wider HRG Group or the Wider Sainsbury's Group to an extent which is or is likely to be material to the Wider HRG Group or the Wider Sainsbury's Group in each case taken as a whole or in the context of the Offer;

(vii)      entered into any licence or other disposal of intellectual property rights of any member of the Wider HRG Group which are material in the context of the Wider HRG Group and outside the normal course of business;

(viii)      entered into, varied, authorised or proposed entry into or variation of, or announced its intention to enter into or vary the terms of or made any offer (which remains open for acceptance) to enter into or vary the terms of, any contract, commitment, arrangement or any service agreement with any director or senior executive of the Wider HRG Group to an extent which is material in the context of the Wider HRG Group or in the context of the Offer save for salary increases, bonuses or variations of terms in the ordinary course;

(ix)       proposed, agreed to provide or modified the terms of any share option scheme, incentive scheme, or other benefit relating to the employment or termination of employment of any employee of the Wider HRG Group which, taken as a whole, are material in the context of the Wider HRG Group taken as a whole or in the context of the Offer;

(x)        other than as provided for in the agreement entered into on 17 March 2016 by the trustee of the Home Retail Group Pension Scheme and Sainsbury's in relation to the future funding of that scheme following Completion, taken or having procured the trustees of the relevant pension scheme to take, or any such trustees having taken any action, to (I) propose, make or agree to any significant change to: (a) the terms of the trust deeds, rules, policy or other governing documents constituting any pension scheme or other retirement or death benefit arrangement established for the directors, former directors, employees or former employees of any entity in the Wider HRG Group or their dependants (a "Relevant Pension Plan"); (b) the basis on which benefits accrue, pensions which are payable or the persons entitled to accrue or be paid benefits, under any Relevant Pension Plan; (c) the basis on which the liabilities of any Relevant Pension Plan are funded or valued; (d) the manner in which the assets of any Relevant Pension Plan are invested; (e) the basis or rate of employer contribution to a Relevant Pension Plan; or (II) enter into or propose to enter into one or more bulk annuity contracts in relation to any Relevant Pension Plan; or (III) carry out any act: (a) which would or could reasonably be expected to lead to the commencement of the winding up of any Relevant Pension Plan; (b) which would or might create a material debt owed by an employer to any Relevant Pension Plan; (c) which would or might accelerate any obligation on any employer to fund or pay additional contributions to any Relevant Pension Plan; or (d) which would or might give rise directly or indirectly to a liability in respect of a Relevant Pension Plan arising out of the operation of sections 38 to 56 inclusive of the Pensions Act 2004 in relation to the scheme;

(xi)       changed the trustee or trustee directors or other fiduciary of any Relevant Pension Plan;

(xii)      entered into, implemented or effected, or authorised, proposed or announced its intention to implement or effect, any joint venture, asset or profit sharing arrangement, partnership, composition, assignment, reconstruction, amalgamation, commitment, scheme or other transaction or arrangement (other than the Offer) which is material in the context of the Wider HRG Group taken as a whole or in the context of the Offer;

(xiii)      purchased, redeemed or repaid or announced any proposal to purchase, redeem or repay any of its own shares or other securities or reduced or, save in respect of the matters mentioned in sub‑paragraph (i) above, made any other change to any part of its share capital;

(xiv)     waived, compromised or settled any claim otherwise than in the ordinary course of business which is material in the context of the Wider HRG Group taken as a whole or in the context of the Offer;

(xv)      made any material alteration to its articles of association or other constitutional documents;

(xvi)     taken or proposed any steps, corporate action or had any legal proceedings instituted or threatened against it in relation to the suspension of payments, a moratorium of any indebtedness, its winding‑up (voluntary or otherwise), dissolution, reorganisation or for the appointment of any administrator, receiver, manager, administrative receiver, trustee or similar officer of all or any of its assets or revenues or any analogous proceedings in any jurisdiction or appointed any analogous person in any jurisdiction or had any such person appointed;

(xvii)     been unable, or admitted in writing that it is unable, to pay its debts or commenced negotiations with one or more of its creditors with a view to rescheduling or restructuring any of its indebtedness, or having stopped or suspended (or threatened to stop or suspend) payment of its debts generally or ceased or threatened to cease carrying on all or a substantial part of its business;

(xviii)    entered into any contract, commitment, agreement or arrangement otherwise than in the ordinary course of business or passed any resolution or made any offer (which remains open for acceptance) with respect to or announced an intention to, or to propose to, effect any of the transactions, matters or events referred to in this Condition;

(xix)     terminated or varied the terms of any agreement or arrangement between any member of the Wider HRG Group and any other person in a manner which would or might be expected to have a material adverse effect on the financial position of the Wider HRG Group taken as a whole; or

(xx)      having taken (or agreed or proposed to take) any action which requires, or would require, the consent of the Panel or the approval of HRG Shareholders in general meeting in accordance with, or as contemplated by, Rule 21.1 of the Takeover Code;

No material adverse change

(l)         since 28 February 2015 and except as Fairly Disclosed:

(i)         there having been no adverse change and no circumstance having arisen which would be expected to result in any adverse change or deterioration in the business, assets, value, financial or trading position, profits, prospects or operational performance of any member of the Wider HRG Group to an extent which is material to the Wider HRG Group taken as a whole or in the context of the Offer or in the context of the obligations of any member of the Wider Sainsbury's Group in connection with the financing of the Offer;

(ii)        no litigation, arbitration proceedings, prosecution or other legal proceedings including, without limitation, with regard to intellectual property rights used by the Wider HRG Group having been threatened, announced or instituted by or against or remaining outstanding against any member of the Wider HRG Group or to which any member of the Wider HRG Group is or may become a party (whether as claimant or defendant or otherwise) and no enquiry, review, investigation or enforcement proceedings by, or complaint or reference to, any Third Party against or in respect of any member of the Wider HRG Group having been threatened, announced or instituted by or against, or remaining outstanding in respect of, any member of the Wider HRG Group which, in any such case, might reasonably be expected to have a material adverse effect on the Wider HRG Group taken as a whole or in the context of the Offer;

(iii)       no contingent or other liability having arisen, increased or become apparent which might be likely adversely to affect the business, assets, financial or trading position, profits, prospects or operational performance of any member of the Wider HRG Group to an extent which is material to the Wider HRG Group taken as a whole or in the context of the Offer; and

(iv)       no steps having been taken and no omissions having been made which are likely to result in the withdrawal, cancellation, termination or modification of any licence held by any member of the Wider HRG Group, which is necessary for the proper carrying on of its business and the withdrawal, cancellation, termination or modification of which is material and likely to have a material adverse effect on the Wider HRG Group taken as a whole or in the context of the Offer;

(m)       since 28 February 2015 and except as Fairly Disclosed, Sainsbury's not having discovered:

(i)         that any financial, business or other information concerning the Wider HRG Group publicly announced or disclosed to any member of the Wider Sainsbury's Group at any time by or on behalf of any member of the Wider HRG Group or to any of their advisers is misleading, contains a misrepresentation of fact or omits to state a fact necessary to make that information not misleading and which is, in any case, adverse to and material in the context of the Wider HRG Group taken as a whole or the Offer;

(ii)        that any member of the Wider HRG Group is subject to any liability, contingent or otherwise, and which is adverse to and material in the context of the Wider HRG Group or the Offer; or

(iii)       any information which affects the import of any information disclosed to Sainsbury's at any time by or on behalf of any member of the Wider HRG Group which is material in the context of the Wider HRG Group or in the context of the Offer;

Environmental liabilities

(n)        except as Fairly Disclosed, Sainsbury's not having discovered that:

(i)         any past or present member of the Wider HRG Group has not complied with any applicable legislation or regulations, notices or other requirements of any jurisdiction or any Third Party or any Authorisations relating to the use, treatment, storage, carriage, disposal, discharge, spillage, release, leak or emission of any waste or hazardous substance or greenhouse gas, or any substance likely to impair the environment (including property) or harm the health of humans, animals or other living organisms or eco‑systems or otherwise relating to environmental matters or the health and safety of humans, which non‑compliance would be likely to give rise to any liability including any penalty for non‑compliance (whether actual or contingent) on the part of any member of the Wider HRG Group in each case which is material in the context of the Wider HRG Group taken as a whole or in the context of the Offer; or

(ii)        there has been a disposal, discharge, spillage, accumulation, leak, emission, release or the migration, production, supply, treatment, storage, transport or use of any waste or hazardous substance or greenhouse gas or any substance likely to impair the environment (including any property) or harm human health which (whether or not giving rise to non‑compliance with any law or regulation) would be likely to give rise to any liability (whether actual or contingent) on the part of any member of the Wider HRG Group in each case which is material in the context of the Wider HRG Group taken as a whole or in the context of the Offer; or

(iii)       there is or is likely to be any obligation or liability (whether actual or contingent) or requirement to make good, remediate, repair, re‑instate or clean up any property, asset currently or previously owned, occupied or made use of by any past or present member of the Wider HRG Group (or on its behalf), or in which any such member may have or previously have had or be deemed to have had an interest, or other elements of the environment (including any controlled waters) under any environmental legislation, common law, regulation, notice, circular, Authorisation, other legally binding requirement or order of any Third Party or to contribute to the cost thereof or associated therewith or indemnify any person in relation thereto in any such case to an extent which is material in the context of the Wider HRG Group taken as a whole or in the context of the Offer; or

(iv)       circumstances exist (whether as a result of the Offer or otherwise):

(A)       which would be likely to lead to any Third Party instituting; or

(B)       whereby any member of the Wider Sainsbury's Group or any present or past member of the Wider HRG Group would be likely to be required to institute,

an environmental audit or take any other steps which would in any such case be likely to result in any liability (whether actual or contingent) to improve, modify existing or install new plant, machinery or equipment or carry out changes in the processes currently carried out or make good, remediate, repair, re‑instate or clean up any land or other asset currently or previously owned, occupied or made use of by any past or present member of the Wider HRG Group (or on its behalf) or by any person for which a member of the Wider HRG Group is or has been responsible, or in which any such member may have or previously have had or be deemed to have had an interest, which in any case is material in the context of the Wider HRG Group taken as a whole or in the context of the Offer; or

(v)        circumstances exist whereby a person or class of persons would be likely to have any claim or claims in respect of any product or process of manufacture or materials used therein currently or previously manufactured, sold or carried out by any past or present member of the Wider HRG Group which claim or claims would be likely, adversely to affect any member of the Wider HRG Group and which is material in the context of the Wider HRG Group taken as a whole or in the context of the Offer;

Intellectual Property

(o)        no circumstance having arisen or event having occurred in relation to any intellectual property owned or used by any member of the Wider HRG Group which would have a material adverse effect on the Wider HRG Group taken as a whole or is otherwise material in the context of the Offer, including:

(i)         any member of the Wider HRG Group losing its title to any intellectual property, or any intellectual property owned by the Wider HRG Group and being revoked, cancelled or declared invalid;

(ii)        any claim being asserted in writing or threatened in writing by any person challenging the ownership of any member of the Wider HRG Group to, or the validity or effectiveness of, any of its intellectual property; or

(iii)       any agreement regarding the use of any intellectual property licensed to or by any member of the Wider HRG Group being terminated or varied;

Anti‑corruption and sanctions

(p)        except as Fairly Disclosed, Sainsbury's not having discovered that:

(i)         any past or present member, director, officer or employee of the Wider HRG Group or any person that performs or has performed services for or on behalf of any such company is or has at any time engaged in any activity, practice or conduct (or omitted to take any action) in contravention of the UK Bribery Act 2010, the US Foreign Corrupt Practices Act of 1977, as amended or any other applicable anti‑corruption legislation;

(ii)        any past or present member, director, officer or employee of the Wider HRG Group or any person that performs or has performed services for or on behalf of any such company may be liable or responsible for the Wider HRG Group has engaged in any activity or business with, or made any investments in, or made any funds or assets available to, or received any funds or assets from any government, entity or individual covered by any of the economic sanctions administered by the United Nations or the European Union (or any of their respective member states) or the United States Office of Foreign Assets Control or any other governmental or supranational body or authority in any jurisdiction; and

No criminal property

(q)        except as Fairly Disclosed, Sainsbury's not having discovered that any asset of any member of the Wider HRG Group constitutes criminal property as defined by section 340(3) of the Proceeds of Crime Act 2002 (but disregarding paragraph (b) of that definition).

2.         Waiver and invocation of the Conditions

Subject to the requirements of the Panel, Sainsbury's reserves the right to waive, in whole or in part, all or any of the Conditions except for Conditions 1(a) to 1(d) inclusive, which cannot be waived. Conditions 1(b) to 1(q) inclusive must be fulfilled or (if capable of waiver) waived on or before midnight on the 21st calendar day after the later of the First Closing Date and the date on which Condition 1(a) is fulfilled (or, in each case, such later date as the Panel may agree), failing which the Offer will lapse. Sainsbury's shall be under no obligation to waive (if capable of waiver) or treat as fulfilled any of the Conditions by a date earlier than the latest date specified above for the fulfilment or waiver thereof, notwithstanding that any other Conditions may at any earlier date have been waived or fulfilled and that there are at such earlier date no circumstances indicating that any of such Conditions may not be capable of fulfilment. In any event, all of the Conditions to the Offer must be fulfilled or (if capable of waiver) waived on or before midnight on the 81st calendar day following the date on which the Offer Document is published or such other date as may be agreed with the Panel.

If Sainsbury's is required by the Panel to make an offer for HRG Shares under the provisions of Rule 9 of the Takeover Code, Sainsbury's may make such alterations to the Conditions and further terms of the Offer as are necessary to comply with the provisions of that Rule.

3.         Implementation by way of a Scheme

Sainsbury's reserves the right to implement the Acquisition by way of a court-sanctioned Scheme in accordance with Part 26 of the 2006 Act (with the consent of the Panel). In such an event, the terms of the Acquisition would be substantially the same as those of the Offer, subject to appropriate amendments as set out in paragraph 24 of this announcement (which involves a cancellation scheme followed by New TopCo Capital Reduction). Sainsbury's reserves the right to implement the Acquisition by way of a transfer scheme under Part 26 of the 2006 Act or through different steps and processes (with the consent of the Panel, if required).

4.         Further terms of the Offer

The Offer will lapse if there is a Phase 2 CMA Reference before 1.00 p.m. on the First Closing Date or the date on which the Offer becomes or is declared unconditional as to acceptances, whichever is later. If the Offer so lapses, the Offer will cease to be capable of further acceptance and accepting HRG Shareholders and Sainsbury's will cease to be bound by Forms of Acceptance submitted before the time when the Offer lapses.

If any dividend or other distribution is announced, declared, made, paid or becomes payable by HRG in respect of the HRG Shares on or after the date of this announcement and prior to the date on which the Offer becomes or is declared unconditional in all respects, other than or in excess of the Special Dividend, Sainsbury's reserves the right to reduce the value of the Offer Consideration (including, for the avoidance of doubt, by reducing the cash element of the Offer Consideration and/or adjusting the Exchange Ratio) by the amount of all or part of the dividend or other distribution, or all or part of the amount in excess of the Special Dividend, that has been announced, declared, made, paid or become payable. In calculating the amount of any such reduction, the value of New Sainsbury's Shares will be calculated by reference to the Closing Price of Sainsbury's Shares on the last trading day before Sainsbury's announcement of a reduction in the Offer Consideration.

The HRG Shares will be acquired pursuant to the Offer with full title guarantee, fully paid and free from all liens, charges, equities, encumbrances, rights of pre-emption and any other interests of any nature whatsoever and together with all rights now or hereafter attaching thereto, including without limitation voting rights and the right to receive and retain in full all dividends and other distributions (if any) declared, made or paid on or after the date of this announcement, other than the Special Dividend.

The New Sainsbury's Shares will be issued credited as fully paid and will rank pari passu in all respects with the Existing Sainsbury's Shares from the date of issue, save that they will not participate in any dividend payable by Sainsbury's with reference to a record date prior to the date on which the Offer becomes or is declared unconditional in all respects.

Fractions of New Sainsbury's Shares will not be allotted or issued to HRG Shareholders and entitlements will be rounded down to the nearest whole number of New Sainsbury's Shares and all fractions of New Sainsbury's Shares will be aggregated and sold in the market as soon as practicable after the date the Offer becomes or is declared unconditional in all respects. The net proceeds of such sale (after deduction of all expenses and commissions incurred in connection with the sale) will be distributed in due proportions to HRG Shareholders who would otherwise have been entitled to such fractions, save that individual entitlements to amounts of less than £5 will be retained for the benefit of the Combined Group.

The availability of the Offer to HRG Shareholders who are not resident in the UK or who are subject to the laws and/or regulations of another jurisdiction (including the ability of such HRG Shareholders to accept the Offer and/or to execute and deliver a Form of Acceptance) may be restricted by the laws and/or regulations of those jurisdictions. Therefore any persons who are not resident in the UK or who are subject to the laws and/or regulations of any jurisdiction other than the UK should inform themselves about, and observe, any applicable legal or regulatory requirements.

The New Sainsbury's Shares to be issued pursuant to the Offer have not been, and will not be, listed on any stock exchange other than the London Stock Exchange and have not been, and will not be, registered under the US Securities Act or under any laws or with any securities regulatory authority of any state, district or other jurisdiction, of the United States, nor have clearances been, nor will they be, obtained from the securities commission or similar authority of any province or territory of Canada and no prospectus has been, or will be, filed, or registration made, under any securities law of any province or territory of Canada, nor has a prospectus in relation to the New Sainsbury's Shares been, nor will one be, lodged with, or registered by, the Australian Securities and Investments Commission, nor have any steps been taken, nor will any steps be taken, to enable the New Sainsbury's Shares to be offered in compliance with applicable securities laws of Japan and no regulatory clearances in respect of the New Sainsbury's Shares have been, or will be, applied for in any other jurisdiction. Accordingly, unless an exemption under relevant securities laws is available, the New Sainsbury's Shares are not being, and may not be, offered, sold, resold, delivered or distributed, directly or indirectly, in, into or from the United States or any other Restricted Jurisdiction or any resident of the United States or any other Restricted Jurisdiction. Neither the SEC nor any US state securities commission has approved or disapproved of the New Sainsbury's Shares, or determined if this announcement is accurate or complete. Any representation to the contrary is a criminal offence.

Appendix 2
SOURCES AND BASES OF INFORMATION

Unless otherwise stated in this announcement:

1.         the value attributed to HRG's issued ordinary share capital is based on 813,445,001 HRG Shares in issue as at the Last Practicable Date;

2.         any references to the existing issued share capital of Sainsbury's are based on 1,924,286,429 Sainsbury's Shares in issue as at the Last Practicable Date;

3.         the market capitalisation for Sainsbury's is based on 1,924,286,429 Sainsbury's Shares in issue and the Closing Price of 281.5 pence per Sainsbury's Share on the Last Practicable Date;

4.         the market capitalisation for HRG is based on 813,445,001 HRG Shares in issue and the Closing Price of 181.2 pence per HRG Share on the Last Practicable Date;

5.         unless otherwise stated, the financial information relating to Sainsbury's is extracted from the audited consolidated financial statements of the Sainsbury's Group for the 52-week period ended 14 March 2015, prepared in accordance with IFRS;

6.         unless otherwise stated, the financial information relating to HRG is extracted from the audited consolidated financial statements of the HRG Group for the 52-week period ended 28 February 2015, prepared in accordance with IFRS; and

7.         unless otherwise stated, all prices for HRG and Sainsbury's Shares have been derived from the Daily Official List and represent Closing Prices on the relevant date(s).

Appendix 3
REVISED quantified Financial benefits statement

PART A

Paragraph 4 of this announcement includes revised statements of estimated cost savings and synergies expected to arise from the Offer (together, the "Revised Quantified Financial Benefits Statement"). A copy of the Revised Quantified Financial Benefits Statement is set out below:

"The Sainsbury's Directors now expect a higher level of EBITDA synergies in the third full year after Completion of not less than £160 million. This represents an increase of one third compared to the previous estimate of not less than £120 million EBITDA synergies. This higher EBITDA synergy estimate results from (i) an increase of £15 million in the estimated synergies from Argos concessions due to an increase in the number of concession opportunities and increased occupancy cost savings, offset by a reduction in the estimated Sainsbury's food and grocery halo sales; (ii) an increase of £30 million in the estimated cost synergies from central and support functions savings as well increased buying cost savings; and (iii) a decrease of £5 million in other revenue synergies as a result of revised assumptions on clothing, homewares and seasonal revenue synergies (3).

Note:

(3)           Numbers refer to synergies in the third full year after Completion.

Approximately 15 per cent. of the estimated EBITDA synergies are expected to be realised in the first full year after Completion, approximately 65 per cent. in the second full year after Completion and 100 per cent. in the third full year after Completion.

The constituent elements of quantified synergies, which are in addition to savings previously targeted by Sainsbury's and HRG separately, comprise the following:

·          approximately 45 per cent. of the identified synergies (approximately £75 million) are expected to be generated from Argos concessions, arising from (i) cost savings generated from the relocation of certain existing Argos stores into concessions in Sainsbury's stores, and (ii) revenue gains from new concessions within Sainsbury's stores, including but not limited to cross-selling opportunities and the expansion of Click and Collect desks. Of these synergies, approximately 15 per cent. are expected to be realised in the first full year after Completion, approximately 60 per cent. in the second full year after Completion and 100 per cent. in the third full year after Completion;

·          approximately 45 per cent. of the identified synergies (approximately £70 million) are expected to be cost synergies generated by removing duplication and overlap from both central and support functions at Sainsbury's and HRG. There are also benefits to the Combined Group in purchasing of goods for resale and goods not for resale from sharing best practice and increased scale. Of these synergies, approximately 15 per cent. are expected to be realised in the first full year after Completion, approximately 65 per cent. in the second full year after Completion and 100 per cent. in the third full year after Completion; and

·          the remainder of the identified synergies (approximately £15 million) are expected to be further revenue synergies, principally from the sale of Sainsbury's clothing, homewares and seasonal and leisure ranges through the existing Argos network together with the roll-out of Sainsbury's ATMs to Argos locations and the sale of Habitat products through Sainsbury's channels. Of these synergies, approximately 25 per cent. are expected to be realised in the first full year after Completion, approximately 80 per cent. in the second full year after Completion and 100 per cent. in the third full year after Completion.

It is expected that the realisation of the identified synergies will require one-off exceptional costs of approximately £130 million, of which approximately 50 per cent. are expected to be incurred in the first full year after Completion, 20 per cent. in the second full year after Completion and 30 per cent. in the third full year after Completion.

It is also expected that incremental capital expenditure of approximately £140 million will be incurred in the three years following Completion, relating to store fit-out expenditure. Approximately 30 per cent. of this capital expenditure is to be incurred in the first full year after Completion, 40 per cent. in the second full year after Completion and 30 per cent. in the third full year after Completion.   

The synergies referred to above are expected to be recurring and are expected to arise as a direct result of the Offer and could not be achieved independently of the Offer. The synergies are also stated net of anticipated dis-synergies, which arise principally from lost sales in the Argos stores moving more than one mile or changing to a different retail location type as well as estimated cannibalisation impact of new infill Argos concessions. For the avoidance of doubt, the EBITDA impact of the synergies as set out above already reflects the impact of these identified dis-synergies."

Further information on the bases of belief supporting the Revised Quantified Financial Benefits Statement, including the principal assumptions and sources of information, is set out below.

Bases of Belief and Principal Assumptions

Following initial discussions regarding the Offer, a synergy development team was established to evaluate and assess the potential synergies available for the integration and undertake an initial planning exercise (the "Sainsbury's Synergy Team" or the "Team"). The Team, which comprises senior strategy and financial colleagues, has worked collaboratively to identify and quantify potential synergies as well as estimate any associated costs on behalf of the Sainsbury's Directors. The Team also worked alongside external consultants to prepare a detailed synergy plan.

The Team has engaged with the relevant functional heads and other personnel to provide input into the development process and to agree on the nature and quantum of the identified synergy initiatives. In preparing the Revised Quantified Financial Benefits Statement, Sainsbury's has had a level of due diligence access to HRG in order to confirm certain key data points as well as information available to it from existing trials of Argos concessions in its stores. In circumstances where data has been limited due to lack of access to HRG, the Team has made estimates and assumptions to aid its development of individual synergy initiatives. The assessment and quantification of the potential synergies have in turn been informed by Sainsbury's management's industry experience and knowledge of its existing business.

The Sainsbury's Synergy Team has sought to assess synergies in relation to the HRG Group central functions and the Argos business. The cost bases used as the basis for the Revised Quantified Financial Benefits Statement are those contained in the management accounts of HRG for the financial year ended 28 February 2015 and the 2015 Annual Report and Accounts of Sainsbury's.

The majority of cost saving synergies are driven by physical consolidation that is within the influence of Sainsbury's management, whereas the delivery of the revenue synergies is more complex and to some extent outside the full control of Sainsbury's management.

In general, the synergy assumptions have in turn been risk adjusted, exercising a degree of prudence in the calculation of the estimated synergy benefit set out above.

Reports

As required by Rule 28.1(a) of the Takeover Code, Deloitte, as reporting accountants to Sainsbury's, have provided a report stating that, in their opinion, the Revised Quantified Financial Benefits Statement has been properly compiled on the basis stated. In addition, Morgan Stanley and UBS, as joint financial advisers to Sainsbury's, have provided a joint report stating that, in their view, the Revised Quantified Financial Benefits Statement has been prepared with due care and consideration.

Copies of these reports are included in Part B and Part C of this Appendix 3. Each of Deloitte, Morgan Stanley and UBS has given and not withdrawn its consent to the publication of its report in this announcement in the form and context in which it is included.

Notes

1.         These statements are not intended as a profit forecast and should not be interpreted as such. These statements of estimated synergies relate to future actions and circumstances which, by their nature, involve risks, uncertainties and contingencies. As a result, the estimated synergies referred to may not be achieved, or may be achieved later or sooner than estimated, or those achieved could be materially different from those estimated. Neither the Revised Quantified Financial Benefits Statement nor any other statement in this announcement should be construed as a profit forecast or interpreted to mean that Sainsbury's earnings in the first full year following Completion, or in any subsequent period, will necessarily match or be greater than or be less than those of Sainsbury's or HRG for the relevant preceding financial period or any other period.

2.         Due to the scale of the enlarged Sainsbury's business, there may be additional changes to the Combined Group's operations. As a result, and given the fact that the changes relate to the future, the resulting synergies may be materially greater or less than those estimated.

3.         In arriving at the estimate of synergies set out in this announcement, the Sainsbury's Synergy Team has assumed that:

(a)       there will be no significant impact on the underlying operations of either business;

(b)       there will be no material change to macroeconomic, political or legal conditions in the markets or regions in which in the Combined Group operates which will materially impact on the implementation of or costs to achieve the proposed cost savings; and

(c)       there will be no material change in exchange rates.

 

 

PART B
REPORT FROM DELOITTE

The Board of Directors

on behalf of J Sainsbury Plc

33 Holborn

London

EC1N 2HT

 

UBS Limited

1 Finsbury Avenue

London

EC2M 2PP

 

Morgan Stanley & Co International plc

25 Cabot Square

Canary Wharf

London

E14 4QA

 

18 March 2016

 

Dear Sirs

OFFER FOR HOME RETAIL GROUP PLC (THE "TARGET") BY J SAINSBURY PLC (THE "OFFEROR")

We report on the statement made by the directors of the Offeror (the "Directors") of quantified financial benefits set out in Part A of Appendix 3 of the announcement (the "Announcement") dated 18 March 2016 issued by the Offeror (the "Statement"). The Statement has been made in the context of the disclosures within Part A setting out, inter alia, the basis of the Directors' belief (identifying the principal assumptions and sources of information) supporting the Statement and their analysis, explanation and quantification of the constituent elements. 

Responsibilities

It is the responsibility of the Directors to prepare the Statement in accordance with Rule 28 of the Takeover Code. 

It is our responsibility to form our opinion, as required by Rule 28.1(a) of the Takeover Code, as to whether the Statement has been properly compiled on the basis stated and to report that opinion to you.

This report is given solely for the purposes of complying with Rule 28.1(a)(i) of the Takeover Code and for no other purpose. Therefore, to the fullest extent permitted by law we do not assume any other responsibility to any person for any loss suffered by any such person as a result of, arising out of, or in connection with this report or our statement, required by and given solely for the purposes of complying with Rule 23.3 of the Takeover Code, consenting to its inclusion in the Announcement.

Basis of opinion

We conducted our work in accordance with the Standards for Investment Reporting issued by the Auditing Practices Board in the United Kingdom.

Our work included considering whether the Statement has been accurately computed based upon the disclosed bases of belief (including the principal assumptions). Whilst the bases of belief (and the principal assumptions) upon which the Statement is based are solely the responsibility of the Directors, we considered whether anything came to our attention to indicate that any of the bases of belief (or principal assumptions) adopted by the Directors which, in our opinion, are necessary for a proper understanding of the Statement, have not been disclosed or if any basis of belief (or principal assumption) made by the Directors appears to us to be unrealistic. Our work did not involve any independent examination of any of the financial or other information underlying the Statement.

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with reasonable assurance that the Statement has been properly compiled on the basis stated.

Since the Statement (and the principal assumptions on which it is based) relates to the future, the actual financial benefits achieved are likely to be different from those anticipated in the Statement and the differences may be material. Accordingly, we can express no opinion as to the achievability of the financial benefits identified by the Directors in the Statement.

Our work has not been carried out in accordance with auditing or other standards and practices generally accepted in jurisdictions outside the United Kingdom, including the United States of America, and accordingly should not be relied upon as if it had been carried out in accordance with those standards and practices. We have not consented to the inclusion of this report and our opinion in any registration statement filed with the SEC under the US Securities Act of 1933 (either directly or by incorporation by reference) or in any offering document enabling an offering of securities in the United States (whether under Rule 144A or otherwise). We therefore accept no responsibility to, and deny any liability to, any person using this report and opinion in connection with any offering of securities inside the United States of America or who makes a claim on the basis they had acted in reliance on the protections afforded by United States of America law and regulation.

Opinion

In our opinion, based on the foregoing, the Statement has been properly compiled on the basis stated.

Yours faithfully

Deloitte LLP

Chartered Accountants

Deloitte LLP is a limited liability partnership registered in England and Wales with registered number OC303675 and its registered office at 2 New Street Square, London EC4A 3BZ, United Kingdom.  Deloitte LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu Limited ("DTTL"), a UK private company limited by guarantee, whose member firms are legally separate and independent entities. Please see www.deloitte.co.uk/about for a detailed description of the legal structure of DTTL and its member firms.

PART C
REPORT FROM MORGAN STANLEY AND UBS

 

The Directors

J Sainsbury plc

33 Holborn

London

EC1N 2HT

 

18 March 2016

 

Dear Sirs,

Offer for Home Retail Group plc ("HRG") by J Sainsbury plc ("Sainsbury's")

We refer to the Revised Quantified Financial Benefits Statement, the bases of belief thereof and the notes thereto (together, the "Statement") as set out in Part A of Appendix 3 of this announcement, for which the Board of Directors of Sainsbury's (the "Directors") are solely responsible under Rule 28 of the City Code on Takeovers and Mergers (the "Code").

We have discussed the Statement (including the assumptions and sources of information referred to therein) with the Directors and those officers and employees of Sainsbury's who developed the underlying plans. The Statement is subject to uncertainty as described in this announcement and our work did not involve an independent examination of any of the financial or other information underlying the Statement.

We have relied upon the accuracy and completeness of all the financial and other information provided to us by or on behalf of Sainsbury's, or otherwise discussed with us, and we have assumed such accuracy and completeness for the purposes of providing this letter.

We do not express any opinion as to the achievability of the quantified financial benefits identified by the Directors.

We have also reviewed the work carried out by Deloitte LLP and have discussed with them the opinion set out in Part B of Appendix 3 of this announcement addressed to yourselves and ourselves on this matter.

This letter is provided to you solely in connection with Rule 28.1(a)(ii) of the Code and for no other purpose. We accept no responsibility to Sainsbury's or its shareholders or any person other than the Directors in respect of the contents of this letter; no person other than the Directors can rely on the contents of this letter, and to the fullest extent permitted by law, we exclude all liability (whether in contract, tort or otherwise) to any other person, in respect of this letter, its contents or the work undertaken in connection with this letter or any of the results that can be derived from this letter or any written or oral information provided in connection with this letter, and any such liability is expressly disclaimed except to the extent that such liability cannot be excluded by law.

On the basis of the foregoing, we consider that the Statement, for which you as the Directors are solely responsible for purposes of Rule 28 of the Code, has been prepared with due care and consideration.

Yours faithfully,

Morgan Stanley & Co. International plc and UBS Limited

 

 

Appendix 4
SAINSBURY'S PROFIT Estimate

 

1.         Sainsbury's Profit Estimate

The Sainsbury's Group made a statement at the time of its second quarter trading statement for the 16 weeks to 26 September 2015, announced on 30 September 2015, that should current market trends continue, it expected its full year (that is, for the 52 weeks ended 12 March 2016 ("FY 2016")) underlying profit before tax (defined as profit before tax before any profit or loss on the disposal of properties, investment property fair value movements, retailing financing fair value movements, IAS 19 pension financing element and defined benefit pension scheme expenses, acquisition adjustments and one-off items that are material and infrequent in nature, but after the coupons on the perpetual subordinated capital securities and perpetual subordinated convertible bonds) ("UPBT") to be moderately ahead of its published consensus profit (which, at the time of such announcement, was £548 million) (the "Sainsbury's Profit Estimate").

The above statement constitutes a profit estimate for the purposes of Rule 28 of the Takeover Code.

An estimate has been made of UPBT rather than profit before tax because, in the view of the Sainsbury's Directors, UPBT is a key metric that provides a clear and consistent presentation of the underlying results of Sainsbury's ongoing business for shareholders and investors.

2.         Basis of Preparation

The Sainsbury's Directors confirm that the Sainsbury's Profit Estimate has been properly compiled on the basis stated below and on a basis consistent with the accounting policies of Sainsbury's, which are in accordance with IFRS and are those which Sainsbury's is applying in preparing its financial statements for FY 2016.

The Sainsbury's Directors prepared the Sainsbury's Profit Estimate on the basis of the published unaudited interim financial statements for the 28 weeks ended 26 September 2015, the unaudited management accounts of the Sainsbury's Group for the 20 weeks ended 13 February 2016 and a forecast for the four weeks ended 12 March 2016.

The Sainsbury's Profit Estimate excludes the costs and ongoing impact of the Offer.

3.         Sainsbury's Directors' confirmation

The Sainsbury's Directors have considered the Sainsbury's Profit Estimate and confirm that it remains valid as at the date of this announcement and that it has been properly compiled on the basis set out above and that the basis of the accounting used is consistent with Sainsbury's accounting policies.

 

 

Appendix 5
DEFINITIONS

The following definitions apply throughout this announcement unless the context otherwise requires:

"2006 Act"

the Companies Act 2006, as amended from time to time

"2015 Annual Report and Accounts of HRG"

the annual report and audited accounts of the HRG Group for the 52-week period ended 28 February 2015

"2015 Annual Report and Accounts of Sainsbury's"

the annual report and audited accounts of the Sainsbury's Group for the 52-week period ended 14 March 2015

"Acquisition"

the proposed acquisition by Sainsbury's of the entire issued and to be issued share capital of HRG by means of an Offer or a Scheme

"Additional HRG Payment"

2.8 pence per HRG Share proposed to be paid to HRG Shareholders in lieu of a final dividend in respect of HRG's financial year ended 27 February 2016

"Admission"

the admission of the New Sainsbury's Shares by the FCA to the Official List and to trading on the London Stock Exchange's main market for listed securities

"Agreed Terms Announcement"

the announcement by Sainsbury's and HRG under Rule 2.4 of the Takeover Code on 2 February 2016 setting out the key financial terms of a possible offer for HRG

"Amendment and Restatement Agreement"

the amendment and restatement agreement dated 18 March 2016 between, amongst others, Sainsbury's and the lenders set out therein making certain amendments to the existing facility agreement dated 5 May 2015, as described in paragraph 7 of this announcement

"associated undertaking"

shall be construed in accordance with paragraph 19 of Schedule 6 to The Large and Medium‑sized Companies and Groups (Accounts and Reports) Regulations 2008 (SI 2008/410) but for this purpose ignoring paragraph 19(1)(b) of Schedule 6 to those regulations)

"Authorisations"

authorisations, orders, grants, recognitions, confirmations, consents, licences, clearances, certificates, permissions or approvals

"Board"

the board of directors of a company

"Business Day"

a day, not being a public holiday, Saturday or Sunday, on which clearing banks in London are open for normal business

"Closing Price"

the closing middle market price of a share as derived from the Daily Official List on any particular date

"CMA"

Competition and Markets Authority of the UK

"Combined Group"

the enlarged group following Completion of the Offer, comprising the HRG Group and the Sainsbury's Group

"Completion"

the Offer having been declared or having become unconditional in all respects in accordance with the requirements of the Takeover Code, or if the Acquisition is implemented by way of a Scheme (and subsequent steps contemplated by the Scheme), the Scheme having become effective pursuant to its terms and the New TopCo Reduction Court Order having been registered with the Registrar of Companies

"Conditions"

the conditions of the Offer, as set out in Appendix 1 to this announcement and to be set out in the Offer Document

"Confidentiality Agreement"

the confidentiality agreement dated 3 February 2016 between Sainsbury's and HRG, as described in paragraph 13 of this announcement

"Court"

the High Court of Justice in England and Wales

"Daily Official List"

means the daily official list of the London Stock Exchange

"Dealing Disclosure"

an announcement pursuant to Rule 8 of the Takeover Code containing details of dealings in interests in relevant securities of a party to an offer

"Deloitte"

Deloitte LLP

"Disclosure and Transparency Rules"

the Disclosure and Transparency Rules of the FCA in its capacity as the UKLA under FSMA and contained in the UKLA's publication of the same name

"EBITDA"

earnings before interest, tax, depreciation and amortisation

"Euroclear"

Euroclear UK & Ireland Limited

"Exchange Ratio"

0.321 Sainsbury's Shares for each HRG Share held

"Existing Sainsbury's Shares"

the Sainsbury's Shares in issue as the date of this announcement

"Fairly Disclosed"

the information which has been fairly disclosed by or on behalf of HRG: (i) prior to the date of this announcement by or on behalf of HRG to Sainsbury's or Sainsbury's financial, accounting, tax or legal advisers (specifically as Sainsbury's advisers in relation to the Offer); (ii) in the 2015 Annual Report and Accounts of HRG; (iii) in the circular dated 2 February 2016 published by HRG in connection with the Homebase Sale; (iv) in a public announcement made in accordance with the Disclosure Rules and Transparency Rules by HRG after 28 February 2015 and prior to the date of this announcement; or (v) in this announcement

"FCA" or "Financial Conduct Authority"

Financial Conduct Authority or its successor from time to time

"FCA Handbook"

the FCA's Handbook of rules and guidance as amended from time to time

"First Closing Date"

the first closing date of the Offer, to be set out in the Offer Document

"Form of Acceptance"

the Form of Acceptance, Authority and Election for use by HRG Shareholders in connection with the Offer

"FSMA"

the Financial Services and Markets Act 2000 (as amended from time to time)

"GFSC"

the Guernsey Financial Services Commission

"Homebase Payment"

25 pence per HRG Share, reflecting the £200 million return to shareholders in respect of the Homebase Sale, as announced by HRG on 18 January 2016

"Homebase Sale"

the sale of Homebase business by Home Retail Group (UK) Limited to Bunnings (UK & I) Holdings Limited pursuant to the Homebase Sale Agreement, as announced by HRG on 18 January 2016 and which completed on 27 February 2016

"Homebase Sale Agreement"

the share purchase agreement entered into between, among others, HRG, Home Retail Group (UK) Limited and Bunnings (UK & I) Holdings Limited on 17 January 2016 in relation to the Homebase Sale

"HRG"

Home Retail Group plc

"HRG ADR Holders"

holders of HRG ADRs

"HRG ADRs"

sponsored level 1 American Depositary Receipts (or, as the context requires, the American Depositary Shares) of HRG for which Citibank N.A. acts as depositary

"HRG Employee Share Plans"

the Home Retail Group UK Tax-Qualified Sharesave Plan, the Home Retail Group Irish Approved Sharesave Plan 2007, the Home Retail Group Performance Share Plan and the Home Retail Group Share Option Plan

"HRG Group"

HRG and its subsidiary undertakings from time to time, and where the context permits, each of them

"HRG Shareholder(s)"

holders of HRG Shares

"HRG Share(s)"

the existing unconditionally allotted or issued and fully paid ordinary shares of 10 pence each in the capital of HRG and any further shares which are unconditionally allotted or issued before the date on which the Offer closes (or such earlier date or dates, not being earlier than the date on which the Offer becomes unconditional as to acceptances or, if later, the
First Closing Date of the Offer, as Sainsbury's may decide) but excluding in both cases any such shares held or which become held in treasury

"IAS"

International Accounting Standards

"IFRS"

international accounting standards and international financial reporting standards and interpretations thereof, approved or published by the International Accounting Standards Board and adopted by the European Union

"Last Practicable Date"

17 March 2016, being the last practicable date prior to the date of this announcement

"Listing Rules"

the listing rules, made by the FCA under Part 6 FSMA, as amended from time to time

"London Stock Exchange"

the London Stock Exchange plc or its successor

"Mix and Match Facility"

the facility under which HRG Shareholders are entitled to elect to vary the proportions in which they receive New Sainsbury's Shares and in which they receive cash in respect of their holdings of HRG Shares to the extent that other such HRG Shareholders make off‑setting elections

"Morgan Stanley"

Morgan Stanley & Co. International plc

"New Sainsbury's Shares"

Sainsbury's ordinary shares of 284/7 pence each proposed to be issued credited as fully paid pursuant to the Offer

"New TopCo"

if Sainsbury's elects to implement the Acquisition by way of a Scheme as described in paragraph 24 of this announcement, a company to be incorporated in due course which will hold the entire issued share capital of HRG upon the Scheme becoming effective

"New TopCo Capital Reduction"

if Sainsbury's elects to implement the Acquisition by way of a Scheme as described in paragraph 24 of this announcement, the proposed capital reduction of New TopCo as described in paragraph 24 of this announcement

"New TopCo Reduction Court Order"

the Court order confirming the New TopCo Capital Reduction

"Offer"

the offer to be made by Sainsbury's to acquire the entire issued and to be issued share capital of HRG on the terms and subject to the Conditions set out in this announcement and to be set out in the Offer Document and the Form of Acceptance including, where the context so requires, any subsequent revision, variation, extension or renewal of such offer and includes any election available in connection with it

"Offer Consideration"

the consideration offered by Sainsbury's under the terms of the Offer in the form of 55 pence in cash and 0.321 New Sainsbury's Shares for each HRG Share

"Offer Document"

the document to be sent to HRG Shareholders containing, among other things, the terms and Conditions of the Offer

"Offer Period"

the period which commenced on 5 January 2016 and ending on whichever of the following dates shall be the latest: (i) 1.00 p.m. on the First Closing Date; (ii) the date on which the Offer lapses or is withdrawn; and (iii) the date on which the Offer becomes or is declared unconditional as to acceptances

"Official List"

the Official List of the FCA

"Opening Position Disclosure"

an announcement containing details of interests or short positions in, or rights to subscribe for, any relevant securities of a party to the Offer if the person concerned has such a position, as defined in Rule 8 of the Takeover Code

"Panel"

the Panel on Takeovers and Mergers

"Phase 2 CMA Reference"

a reference of the Offer to the chair of the CMA for the constitution of a group under Schedule 4 to the Enterprise and Regulatory Reform Act 2013

"Prospectus"

the prospectus relating to Sainsbury's to be published in respect of the New Sainsbury's Shares to be issued in connection with the Offer

"Prudential Regulation Authority"

Prudential Regulation Authority or its successor from time to time

"Registrar of Companies"

the Registrar of Companies in England and Wales

"Regulatory Information Service"

a regulatory information service as defined in the FCA Handbook

"relevant securities"

shall be construed in accordance with the Takeover Code

"Restricted Jurisdiction"

the United States and any other jurisdiction where local laws or regulations may result in a significant risk of civil, regulatory or criminal exposure if the Offer is made, or information concerning the Offer is sent or made available, to HRG Shareholders in that jurisdiction

"Revised Quantified Financial Benefits Statement"

the statement of revised estimated synergies arising from the Offer as set out in paragraph 4 and Part A of Appendix 3 to this announcement

"Sainsbury's"

J Sainsbury plc

"Sainsbury's Directors"

the directors of Sainsbury's

"Sainsbury's Group"

Sainsbury's and its subsidiary undertakings from time to time, and where the context permits, each of them

"Sainsbury's Profit Estimate"

the profit estimate of Sainsbury's for the 52-week period ended 12 March 2016 as set out in paragraph 1 of Appendix 4 to this announcement

"Sainsbury's Share(s)"

the existing Sainsbury's ordinary shares of 284/7pence each in the capital of Sainsbury's

"Scheme"

if Sainsbury's so elects, a scheme of arrangement under Part 26 of the 2006 Act between HRG and the holders of the HRG Shares, with or subject to any modification, addition or condition approved or imposed by the Court and agreed by HRG and Sainsbury's

"Scheme Document"

if Sainsbury's elects to implement the Acquisition by way of a Scheme, the document to be sent by HRG to HRG Shareholders containing, among other things, the terms and conditions of the Scheme and the Acquisition

"Special Dividend"

the special dividend representing the sum of the Homebase Payment and the Additional HRG Payment expected to be (subject to approval by the HRG Board) paid by HRG to the HRG Shareholders

"Steinhoff"

Steinhoff International Holdings N.V.

"subsidiary", "subsidiary undertaking" and "undertaking"

shall be construed in accordance with the 2006 Act

"Takeover Code"

the City Code on Takeovers and Mergers, as amended from time to time

"treasury" or "treasury shares"

shares held as treasury shares as provided for in section 724 of the 2006 Act

"UBS"

UBS Limited

"UK" or "United Kingdom"

United Kingdom of Great Britain and Northern Ireland

"UKLA"

the Financial Conduct Authority acting in its capacity as the competent authority for listing under Part VI of FSMA

"US Securities Act"

the US Securities Act of 1933, as amended and the rules and regulations promulgated thereunder

"Wider HRG Control Group"

the Wider HRG Group, together with any other body corporate, partnership, joint venture or person (in each case, from time to time) in which any member of the Wider HRG Group holds 10 per cent. or more of the voting power or the shares or over the management of which any member of the Wider HRG Group has significant influence (within the meaning used in section 181(2)(c) of FSMA)

"Wider HRG Group"

HRG and associated undertakings and any other body corporate, partnership, joint venture or person (in each case, from time to time) in which HRG and such undertakings (aggregating their interests) have an interest of more than 20 per cent. of the voting or equity capital or the equivalent

"Wider Sainsbury's Group"

Sainsbury's Group and associated undertakings and any other body corporate, partnership, joint venture or person (in each case, from time to time) in which Sainsbury's and such undertakings (aggregating their interests) have an interest of more than 20 per cent. of the voting or equity capital or the equivalent.

All times referred to are London time unless otherwise stated.

All references to "GBP", "pence", "sterling" or "£" are to the lawful currency of the United Kingdom.

All references to statutory provision or law or to any order or regulation shall be construed as a reference to that provision, law, order or regulation as extended, modified, replaced or re-enacted from time to time and all statutory instruments, regulations and orders from time to time made thereunder or deriving validity therefrom.

Words importing the singular shall include the plural and vice versa, and words importing the masculine gender shall include the feminine or neutral gender.


This information is provided by RNS
The company news service from the London Stock Exchange
 
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Offer for Home Retail Group plc - RNS