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Sainsbury’s (SBRY) has serious competition on its hand after South African furniture retailer Steinhoff tabled a surprise 175p bid for Argos owner Home Retail Group (HOME).

The offer landed after hours on late Friday afternoon and puts Sainsbury’s rival bid of 161p under real pressure.

However, with Sainsbury’s shares having risen to close at 261p on Friday, the supermarket’s current offer of shares and cash values Home Retail at about 167p.

Bernstein analyst Bruno Monteyne noted the extra 8p Sainsbury’s would have to bid to match Steinhoff was equivalent to either £67m in cash or Sainsbury’s share price climbing to £2.86 (or up 10%).

Steinhoff is listed on the Frankfurt Stock Exchange in Germany and has a market cap of about €18bn. It operates the Conforama chain in Europe and Harveys and Bensons for Beds in the UK.

“The board is reviewing the Steinhoff proposal with its advisers and will make a further announcement in due course,” a statement from Home Retail said. “Home Retail Group shareholders are advised to take no action at this time.”

Sainsbury’s have until tomorrow (23 February) to make a firm offer under City “shut-up-or-put-up” rules after spending the last few weeks scrutinising Home Retail’s books. Steinhoff have until 18 March to make its intention firm.

The news of the rival bid, which came after the stock exchange closed on Friday, has put pressure on Sainsbury’s share this morning, sending them down 1.6% to 257.2p. Home Retail in contrast is soaring, with the stock up 12% so far this morning to 171.8p.

Morning update

Associated British Food (ABF) has reported “some progress” in group adjusted operating profit for the six months to 27 February. The food and retail giant said in a pre-close trading update that underlying trading outlook for the full year was unchanged, with the weakening of sterling in recent weeks, particularly against the euro, easing the effect of currency translation and leading to a reduction on the previous estimate of £25m to £10m.

Revenue and profits in the first half for the grocery division were expected to be close to last year’s at constant currency and slightly lower at actual exchange rates. Twinings Ovaltine achieved market share gains for tea in the UK, Italy, the US, and Australia. AB Sugar performed “steadily” despite world prices remaining low, ABF added. Sales at Primark were expected to be 7.5% ahead of last year at constant currency, driven by increased retail selling space and 4% ahead at actual exchange rates.

“Following a strong performance at the start of the financial year, trading was weaker in the weeks leading up to and over Christmas as a result of unseasonably warm weather across northern Europe,” the group said. “Cumulative like-for-like sales have improved since the January trading update and are expected to be level with last year in the first half after better trading during the period since then.”

Shares in ABF have increased 1.7% to 3,310p on the back of the pre-close statement. The FTSE 100 started the week strongly, rising 1.2% to 6,020.1 points, with bottler Coca-Cola HBC (CCH) one of the big climbers following Friday’s results - up 4.3% to 1,472p. Unilever (ULVR) was also up 1.9% to 3,091.5p

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