Sainsbury's Texas deal will cost 2,000 jobs

J Sainsbury, the supermarket group, became Britain's second largest DIY retailer yesterday when it announced that it had agreed to buy the Texas Homecare chain from Ladbroke for £290m. Sainsbury, which owns the Homebase chain of DIY stores, is to acquireall 241 of the Texas outlets and gradually re-brand them, with the loss of up to 2,000 jobs.

The purchase brings Sainsbury within touching distance of B&Q, the DIY group run by Kingfisher, which also owns Comet and Woolworths.

Sainsbury is expected to close around 50 of the poorly sited Texas stores. The Texas Homecare head office in Wellingborough, Northamptonshire, will be run down and its functions transferred to the Homebase head office in Wallington, Surrey.

The deal is subject to Office of Fair Trading approval, but as Sainsbury will still have only 10 per cent of the market, an objection is considered unlikely.

Sainsbury is paying cash for the stores and will fund the purchase through its own cash resources and bank borrowings. The supermaket group is expected to incur costs of £50m as a result of store closures and redundancies. Ladbroke, the betting and hotels group, had earlier signalled that it no longer considered itself a retailer.

The deal was greeted with approval in the City, which has had time to ponder the logic of the move after weeks of speculation that a deal was imminent. Tony MacNeary, food retail analyst with NatWest Securities, said: "I think it is a positive move for Sainsbury. They are capable of improving Texas operating margins and could make an operating profit of £46m by 1998-99."

Richard Hyman, of retail consultants Verdict Research, said: "The deal has tremendous potential for Sainsbury. Homebase is an outstanding player in the DIY market but only has a small sales base. This deal catapults it into the premier league. Sainsbury is paying a full price but the management is more than capable of making it work."

Sainsbury has been a successful operator in the past few years. Last year its 81 stores achieved profits of £22m on sales of £280m. By comparison, the 240 Texas stores could only manage profits of £7.8m on turnover of almost £700m.

Explaining the logic of the deal, Sainsbury's chairman, David Sainsbury, said it was in line with its policy of diversification.

A trading statement on Sainbury's supermarkets yesterday showed that the group needs to pursue other areas such as DIY to maintain its expansion. Sales in the 16 weeks to mid-January were up by just 2.2 per cent on last year.

Mr Sainsbury said yesterday that Texas was fundamentally a sound business which the Homebase management could improve. "You have to take these opportunities when they come, not necessarily when they suit you," he said.

He added that the Texas and Homebase chains made a good geographic fit. Most of the Homebase stores are clustered around the South-east, with no representation in the North-east and Scotland and little in Yorkshire and the North-west. Texas is a nationalchain.

Sainsbury's strategy is to re-brand the stores over two years and introduce its successful Homebase own brand. Some products from the Texas range, such as flatpack furniture, will be added to the Homebase range. Garden centres, where Homebase is strong, will be added to more Texas outlets.