Home Retail’s (LON:HOME) share price soared at the opening bell this morning, after the owner of catalogue retailer Argos and DIY and garden centre chain Homebase emerged as a potential takeover target.
The Sunday Times reported that several private equity firms were considering making bids for the FTSE 250-listed company. According to the newspaper, various industry experts have been called on to advise on potential approaches, which it said could be worth as much as £1 billion. Home Retail's shock profit warning last month, blamed on unpredictable Black Friday and Christmas trading, is said to be behind the “opportunistic” takeover interest.
The news has spurred demand for Home Retail’s shares, sending the stock as much as seven percent higher in early trading today. As of 13:30 GMT, the retailer was changing hands at 108.50p, 4.93 percent up intraday. Before today's jump, the company's shares had fallen more than 55 percent since January.
RBC Capital Markets and Investec said the £1 billion takeover bid rumours highlighted that the shares were undervalued and could recover under current management. The investment banks also said that such reports were not surprising given the recent weakness in the shares and valuation support that lies within the group.
“Bid discussions tend to come and go, however we think the company's depressed valuation and potential for an alternative strategy means that the press reports cannot be dismissed out of hand," said RBC, which has a 150p price target and 'outperform' rating on Home Retail.