Recommended Offer for Home Retail Group PLC

RNS Number : 8096T

Sainsbury(J) PLC

01 April 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 SCHEME 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 ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION

FOR IMMEDIATE RELEASE

1 April 2016

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

to be implemented pursuant to a scheme of arrangement

Summary

·        Further to the announcement by J Sainsbury plc ("Sainsbury's") on 18 March 2016 (the "Original Announcement") setting out the terms of its cash and share offer for Home Retail Group plc (the "Acquisition"), the Boards of Sainsbury's and Home Retail Group plc are pleased to announce that following further discussions, the Home Retail Group Directors now intend unanimously to recommend the Acquisition.

·        With the consent of the Panel, the Boards of Sainsbury's and Home Retail Group plc have also agreed to implement the Acquisition pursuant to a court‑sanctioned scheme of arrangement of Home Retail Group plc under Part 26 of the 2006 Act (and the steps contemplated by such scheme as set out below).

·        Under the terms of the Acquisition, 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 Scheme Document, Home Retail Group Shareholders will be entitled to receive:

For each Home Retail Group Share	0.321 New Sainsbury's Shares
	and
	55 pence in cash
	(the "Offer Consideration")

·        In addition, Home Retail Group Shareholders will also be entitled to receive the following payments:

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

·        2.8 pence per Home Retail Group Share in lieu of a final dividend in respect of Home Retail Group plc's financial year ended 27 February 2016 (the "Additional Home Retail Group Payment"),

(together, the "Proposed Capital Returns").

·        Accordingly, the Special Dividend referred to in the Original Announcement will not be paid.

·        Based on the Closing Price of Sainsbury's Shares of 276.3 pence on 31 March 2016, being the Last Practicable Date:

·        the Offer Consideration represents an indicative value of 143.7 pence per Home Retail Group Share and values Home Retail Group plc's issued ordinary share capital at approximately £1.2 billion;

·        the Offer Consideration and the Proposed Capital Returns together represent an indicative value of 171.5 pence per Home Retail Group Share and value Home Retail Group plc's issued ordinary share capital at approximately £1.4 billion; and

·        the Offer Consideration and the Proposed Capital Returns together represent a premium of approximately 74 per cent. to the Closing Price of 98.7 pence per Home Retail Group Share on 4 January 2016 (being the last Business Day prior to the commencement of the Offer Period).

·        Upon Completion it is expected that Home Retail Group 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 Home Retail Group plc).

·        The financial terms of the Acquisition (including the Offer Consideration and the Proposed Capital Returns) are final and will not be increased, except that Sainsbury's reserves the right to increase the amount of the Offer Consideration and/or the Proposed Capital Returns if there is an announcement on or after the date hereof of an offer or a possible offer for Home Retail Group plc by a third party offeror or potential offeror.

·        It is intended that the Scheme, the Proposed Capital Returns and the Acquisition will be implemented by way of a three step process summarised in paragraph 18 of this announcement, pursuant to which Sainsbury's will acquire (indirectly, following the introduction of a new holding company of Home Retail Group plc (the "New TopCo") and the subsequent reduction of capital of New TopCo (the "New TopCo Capital Reduction")) the entire issued and to be issued share capital of Home Retail Group plc.

Conditions to the Acquisition

·        The Acquisition will be subject to substantially the same terms and Conditions as set out in Appendix 1 in the Original Announcement (including regulatory clearances being received from the FCA, the GFSC and the CMA), subject to appropriate amendments to reflect that the Acquisition is to be implemented pursuant to a Scheme (and subsequent steps contemplated by the Scheme) instead of a Takeover Offer, including the deletion of the acceptance condition and its replacement with Conditions relating to the following events having occurred on or before 29 March 2017 (being the Long Stop Date):

·        approval by the requisite majorities of Home Retail Group Shareholders at the Court Meeting and the Home Retail Group General Meeting;

·        the Scheme becoming Effective; and

·        the New TopCo Capital Reduction becoming Effective.

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

Recommendation

·        The Home Retail Group Directors, who have been so advised by Bank of America Merrill Lynch, consider the terms of the Acquisition to be fair and reasonable. In providing its advice to the Home Retail Group Directors, Bank of America Merrill Lynch has taken into account the commercial assessments of the Home Retail Group Directors.

·        Accordingly, the Home Retail Group Directors intend unanimously to recommend that Home Retail Group Shareholders vote in favour of the Scheme at the Court Meeting and the resolutions relating to the Scheme and the Acquisition to be proposed at the Home Retail Group General Meeting (or if the Acquisition is subsequently structured as a Takeover Offer, accept any Takeover Offer made by Sainsbury's), as the Home Retail Group Directors have irrevocably undertaken to do, or procure, in respect of their own beneficial holdings of Home Retail Group Shares amounting to, in aggregate, 1,990,679 Home Retail Group Shares, representing approximately 0.24 per cent. of the issued ordinary share capital of Home Retail Group plc on the Last Practicable Date. Further details of irrevocable undertakings are set out in Appendix 3 to this announcement.

Publication of Scheme Document and Prospectus

·        The Scheme Document will contain further information about and the full terms and Conditions of the Acquisition, notices of the Court Meeting and the Home Retail Group General Meeting and the expected timetable. The Panel has consented to Home Retail Group plc posting the Scheme Document more than 28 days after this announcement. It is expected that the Prospectus, containing further information in relation to the New Sainsbury's Shares, will be published by Sainsbury's at or around the same time as the Scheme Document.

·        The Acquisition is expected to Complete 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.

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

"We are very pleased the Board of Home Retail Group plc has recommended our offer for the acquisition of its business to its shareholders. The combined business will offer a multi-product, multi-channel proposition, with fast delivery networks, which we believe will be very attractive to customers and which will create value to both sets of shareholders.

"The acquisition will now be carried out through a scheme of arrangement, helping to facilitate a speedy completion which is in the interests of the customers, colleagues and shareholders of both businesses. Our next steps are to focus jointly on ensuring we obtain the necessary regulatory clearances and that we are well prepared for the future integration of these two great retailers."

Commenting on today's announcement, John Coombe, Chairman of Home Retail Group plc said:

"Argos is both an icon of the British High Street and also a leader in the digital transformation of UK retailing. We are pleased that Sainsbury's has recognised our progress and our potential with its recommended acquisition of Home Retail Group plc. This is a testament to the vision and hard work of management and all our colleagues. We thank them for all they have done for Home Retail Group plc and Argos in particular and wish them well for the future."

This summary should be read in conjunction with, and is subject to, the full text of this announcement (including its Appendices). The Acquisition 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 Scheme Document. Appendix 2 contains the sources and bases of certain information contained in this announcement. Appendix 3 contains details of the irrevocable undertakings from the Home Retail Group Directors received by Sainsbury's. Appendix 4 contains information relating to the Revised Quantified Financial Benefits Statement made in the Original Announcement and repeated in this announcement and the confirmations by Sainsbury's Directors and Sainsbury's reporting accountants and financial advisers. Appendix 5 includes the Sainsbury's Group's and the Home Retail Group's profit estimates and the basis of preparation relating thereto. Appendix 6 contains the definitions of certain terms used in this summary and the following announcement.

This announcement supersedes and replaces the Original Announcement.

Enquiries

Sainsbury's

Duncan Cooper, Investor Relations                                            Tel: [phone]

Louise Evans/Anna Harland, Media Relations                             Tel: [phone]

Morgan Stanley (Financial Adviser to Sainsbury's)

Paul Baker                                                                                Tel: [phone]

Ian Hart

Nick Bishop

UBS (Financial Adviser to Sainsbury's)

Hew Glyn Davies                                                                      Tel: [phone]

Anna Richardson Brown

Brunswick (PR Adviser to Sainsbury's)

Katie Ioanilli                                                                              Tel: [phone]

Mike Smith

Home Retail Group plc

Richard Ashton, Finance Director                                                Tel: [phone]

Mark Willis, Director of Investor Relations                                                                         

Bank of America Merrill Lynch (Financial Adviser to Home Retail Group plc)

Jonathan Bewes                                                                         Tel: [phone]

Eamon Brabazon

Geoff Iles

Luke McMullan

Finsbury (PR Adviser to Home Retail Group plc)

Rollo Head                                                                                Tel: [phone]

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 Acquisition or otherwise, nor shall there be any sale, issuance or transfer of securities of Sainsbury's or Home Retail Group plc pursuant to the Acquisition or otherwise in any jurisdiction in contravention of applicable law. The Acquisition will be implemented by means of the Scheme Document (or, in the event that the Acquisition is to be implemented by means of a Takeover Offer, the Offer Document), which will contain the full terms and conditions of the Acquisition, including details of how to vote in respect of the Acquisition.

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

Merrill Lynch International ("Bank of America Merrill Lynch"), a subsidiary of Bank of America Corporation, is acting exclusively for Home Retail Group plc in connection with the matters set out in this announcement and for no one else and will not be responsible to anyone other than Home Retail Group plc for providing the protections afforded to its clients or for providing advice in relation to the matters set out in this announcement.

Overseas jurisdictions

The release, publication or distribution of this announcement in or into jurisdictions other than the UK and the availability of the Acquisition to Home Retail Group 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 Home Retail Group Shareholders to vote their Home Retail Group Shares with respect to the Scheme and the Acquisition at the Home Retail Group Meetings, or to execute and deliver Forms of Proxy appointing another to vote at the Home Retail Group Meetings on their behalf) 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 Acquisition 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 Acquisition will not be made, directly or indirectly, in, into or from any Restricted Jurisdiction where to do so would violate the laws and/or regulations in that jurisdiction and no person may vote in favour of the Acquisition from within any Restricted Jurisdiction if to do so would constitute a violation of the laws and/or regulations of that jurisdiction. Accordingly, unless otherwise determined by Sainsbury's or Home Retail Group plc or required by the Takeover Code, and permitted by applicable law and regulation, copies of this announcement and any formal documentation relating to the Acquisition are not being, and must not be, directly or indirectly, mailed or otherwise forwarded, distributed or sent in, into or from any 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 any 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 Scheme 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. If the Acquisition is implemented by way of a Takeover Offer (unless otherwise permitted by applicable law and regulation), the Takeover Offer may 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 any Restricted Jurisdiction and the Takeover Offer may not be capable of acceptance by any such use, means, instrumentality or facilities or from within any Restricted Jurisdiction.

Further details in relation to Home Retail Group Shareholders in overseas jurisdictions will be contained in the Scheme Document.

Note to US holders of Home Retail Group Shares and Home Retail Group ADR Holders

US holders of Home Retail Group Shares and Home Retail Group ADR Holders should note that the Acquisition relates to the securities of a UK company with a listing on the London Stock Exchange and is proposed to be implemented pursuant to a scheme of arrangement provided for under English company law. A transaction effected by means of a scheme of arrangement is not subject to the tender offer rules or the proxy solicitation rules under the US Exchange Act. Accordingly, the Acquisition will be subject to UK procedural and disclosure requirements and practices applicable to a scheme of arrangement involving a target company in England listed on the London Stock Exchange, which are different from the disclosure requirements of the US tender offer and proxy solicitation rules. The financial information included in this announcement and other documentation related to the Acquisition has been or will have been prepared in accordance with International Financial Reporting Standards and thus may not be comparable to financial information of US companies or companies whose financial statements are prepared in accordance with generally accepted accounting principles in the US. If Sainsbury's exercises its right, in the circumstances provided for in this announcement, to implement the Acquisition by way of a Takeover Offer, such Takeover Offer will only be made in the United States if an exemption from the registration requirements of the US Securities Act is available.

The New Sainsbury's Shares to be issued pursuant to the Acquisition have not been 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, and may only be offered or sold in the United States in reliance on an exemption from registration requirements of the US Securities Act including in the case of the proposed scheme of arrangement, Section 3(a)(10) thereunder.

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 Acquisition, or determined if this announcement is accurate or complete. Any representation to the contrary is a criminal offence in the United States.

It may be difficult for US holders of Home Retail Group Shares and Home Retail Group ADR Holders to enforce their rights and claims arising out of the US federal securities laws, since Sainsbury's and Home Retail Group plc are located in countries other than the United States, and some or all of their officers and directors may be residents of countries other than the United States. US holders of Home Retail Group Shares and Home Retail Group ADR Holders may not be able to sue a non-US company or its officers or directors in a non-US court for violations of US securities laws. Further, it may be difficult to compel a non-US company and its affiliates to subject themselves to a US court's judgement.

Forward-looking statements

This announcement (including information incorporated by reference in this announcement), oral statements made regarding the Acquisition, and other information published by Sainsbury's and Home Retail Group plc 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 Home Retail Group plc 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 Acquisition on the Sainsbury's Group, the Home Retail Group and the Combined Group, the expected timing and scope of the Acquisition 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. Although Sainsbury's and Home Retail Group plc believe that the expectations reflected in such forward-looking statements are reasonable, Sainsbury's and Home Retail Group plc can give no assurance that such expectations 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 Home Retail Group plc) 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, the Home Retail 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 Acquisition is implemented, the inability of the Sainsbury's Group to integrate successfully the Home Retail Group's operations and programmes when the Acquisition is implemented, the Combined Group incurring and/or experiencing unanticipated costs and/or delays, or difficulties relating to the Acquisition when the Acquisition 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 Home Retail Group plc, nor any of their respective 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), neither the Sainsbury's Group nor the Home Retail Group is under or undertakes any obligation, and each of the foregoing 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 Home Retail Group Share for the current or future financial years would necessarily match or exceed the historical published earnings per Sainsbury's Share or Home Retail Group 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 10^th Business Day following the commencement of the Offer Period and, if appropriate, by no later than 3.30 pm (London time) on the 10^th 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 [phone] 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 any Restricted Jurisdictions, on the Sainsbury's Group's website at http://www.j-sainsbury.co.uk/investor-centre/disclaimer/ and the Home Retail Group's website at https://www.homeretailgroup.com/investor-centre/sainsburys-offer/ by no later than 12 noon (London time) on the Business Day following this announcement. For the avoidance of doubt, neither the contents of those websites nor the contents of any website accessible from hyperlinks on those websites (or any other websites referred to in this announcement) are incorporated into, or form part of, this announcement.

Sainsbury's Shareholders and Home Retail Group Shareholders may request a hard copy of this announcement by email at [e-mail] or in writing at Shareholder Services, 3^rd Floor, J Sainsbury plc, 33 Holborn, London EC1N 2HT (in the case of Sainsbury's Shareholders) or the Company Secretary of Home Retail Group plc in writing at 489-499 Avebury Boulevard, Milton Keynes MK9 2NW or Capita Asset Services in writing at 40 Dukes Place, London EC3A 7NH (in the case of Home Retail Group Shareholders), in each case during business hours. Sainsbury's Shareholders and Home Retail Group Shareholders may also request that all future documents, announcements and information sent to them in relation to the Acquisition be in hard copy form. A hard copy of such document, announcement (including this announcement) or information will not be sent unless so requested.

Information relating to Home Retail Group Shareholders

Please be aware that addresses, electronic addresses and certain other information provided by Home Retail Group Shareholders, persons with information rights and other relevant persons for the receipt of communications from Home Retail Group plc 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 SCHEME 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 ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION

FOR IMMEDIATE RELEASE

1 April 2016

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

to be implemented pursuant to a scheme of arrangement

1.         Introduction

Further to the announcement by J Sainsbury plc ("Sainsbury's") on 18 March 2016 (the "Original Announcement") setting out the terms of its cash and share offer for Home Retail Group plc (the "Acquisition"), the Boards of Sainsbury's and Home Retail Group plc are pleased to announce that following further discussions, the Home Retail Group Directors now intend unanimously to recommend the Acquisition.

With the consent of the Panel, the Boards of Sainsbury's and Home Retail Group plc have also agreed to implement the Acquisition pursuant to a court‑sanctioned scheme of arrangement of Home Retail Group plc under Part 26 of the 2006 Act (and the steps contemplated by such scheme as set out in paragraph 18 of this announcement).

This announcement supersedes and replaces the Original Announcement.

2.         The Acquisition

Under the terms of the Acquisition, 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 Scheme Document, Home Retail Group Shareholders will be entitled to receive:

For each Home Retail Group Share	0.321 New Sainsbury's Shares
	and
	55 pence in cash
	(the "Offer Consideration")

In addition, Home Retail Group Shareholders will also be entitled to receive the following payments:

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

·        2.8 pence per Home Retail Group Share in lieu of a final dividend in respect of Home Retail Group plc's financial year ended 27 February 2016 (the "Additional Home Retail Group Payment"),

(together, the "Proposed Capital Returns").

Accordingly, the Special Dividend referred to in the Original Announcement will not be paid.

Based on the Closing Price of Sainsbury's Shares of 276.3 pence on 31 March 2016, being the Last Practicable Date:

·        the Offer Consideration represents an indicative value of 143.7 pence per Home Retail Group Share and values Home Retail Group plc's issued ordinary share capital at approximately £1.2 billion;

·        the Offer Consideration and the Proposed Capital Returns together represent an indicative value of 171.5 pence per Home Retail Group Share and value Home Retail Group plc's issued ordinary share capital at approximately £1.4 billion; and

·        the Offer Consideration and the Proposed Capital Returns together represent a premium of approximately 74 per cent. to the Closing Price of 98.7 pence per Home Retail Group Share on 4 January 2016 (being the last Business Day prior to the commencement of the Offer Period).

Upon Completion it is expected that Home Retail Group 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 Home Retail Group plc).

The financial terms of the Acquisition (including the Offer Consideration and the Proposed Capital Returns) are final and will not be increased, except that Sainsbury's reserves the right to increase the amount of the Offer Consideration and/or the Proposed Capital Returns if there is an announcement on or after the date hereof of an offer or a possible offer for Home Retail Group plc by a third party offeror or potential offeror.

It is intended that the Scheme, the Proposed Capital Returns and the Acquisition will be implemented by way of a three step process summarised in paragraph 18 of this announcement, pursuant to which Sainsbury's will acquire (indirectly, following the introduction of a new holding company of Home Retail Group plc (the "New TopCo") and the subsequent reduction of capital of New TopCo (the "New TopCo Capital Reduction")) the entire issued and to be issued share capital of Home Retail Group plc.

The Acquisition will be conditional upon, amongst other things: (i) approval by the requisite majorities of Home Retail Group Shareholders at the Home Retail Group Meetings; (ii) regulatory clearances being received from the FCA, the GFSC and the CMA; and (iii) the Scheme and the New TopCo Capital Reduction becoming Effective and all other Conditions being fulfilled or (if capable of waiver) waived by no later than the Long Stop Date.

The Acquisition will include a Mix and Match Facility, which will allow Home Retail Group 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 Home Retail Group 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 Acquisition will not be varied as a result of elections under the Mix and Match Facility. Please refer to paragraph 7 of this announcement for further details.

Subject to any legal or regulatory requirements or restrictions in any Restricted Jurisdictions, Sainsbury's has agreed to arrange a dealing facility for Home Retail Group plc's retail shareholders. Under such dealing facility, the New Sainsbury's Shares to which Home Retail Group plc's retail shareholders become entitled may be sold for their benefit at the standard cost charged by the provider of such facility. Further details of the dealing facility will be included in the Scheme Document.

3.         Background to and reasons for the Acquisition

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 the Home Retail Group 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 Acquisition, have enabled Sainsbury's to build up a strong understanding of the Home Retail Group business.

The Acquisition accelerates Sainsbury's strategy

The Sainsbury's Directors believe that the Acquisition represents an attractive opportunity to accelerate Sainsbury's strategy across food, clothing and general merchandise and that the combination of Sainsbury's and Home Retail Group plc 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 Acquisition will deliver the following benefits:

Leading food and non-food retailer of choice for customers

·          Both the Sainsbury's and the Home Retail Group 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 the Home Retail Group 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

·          The Home Retail Group 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 Home Retail Group plc will significantly enhance Sainsbury's digital capability in food, clothing and general merchandise.

·          The Acquisition 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 Acquisition 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 Acquisition 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 Acquisition 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 Acquisition 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 Acquisition

Synergy potential

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

The Agreed Terms Announcement on 2 February 2016 included statements of estimated cost savings and synergies expected to arise from the Acquisition.

Sainsbury's has been able, as a result of further analysis and its integration planning work following undertaking due diligence on the Home Retail Group, to revise the initial synergy estimate, as set out in the Original Announcement and repeated below (the "Revised Quantified Financial Benefits Statement") ⁽¹⁾. The Sainsbury's Directors believe that these cost savings and synergies further enhance the attractiveness of the Acquisition.

Note:

(1)           References to "Offer" and "HRG" in the Revised Quantified Financial Benefits Statement set out in the Original Announcement have been replaced with "Acquisition" and "Home Retail Group plc" respectively.

"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. ⁽²⁾

Note:

(2)           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 Home Retail Group plc 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 Home Retail Group plc. 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 Acquisition and could not be achieved independently of the Acquisition. 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 4 for further detail on the above Revised Quantified Financial Benefits Statement (including the supporting bases of belief and principal assumptions). References in this announcement to the Revised Quantified Financial Benefits Statement should be read in conjunction with Appendix 4.

The Sainsbury's Directors have confirmed that there have been no material changes to the Revised Quantified Financial Benefits Statement since 18 March 2016 and the Revised Quantified Financial Benefits Statement remains valid. Deloitte, Morgan Stanley and UBS have also confirmed to Sainsbury's that the reports they produced in connection with the Revised Quantified Financial Benefits Statement (copies of which were set out in Appendix 3 to the Original Announcement on 18 March 2016) continue to apply.

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 Acquisition 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) ⁽³⁾ in the third full year following Completion. ⁽⁴⁾

Notes:

(3)           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.

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

5.         Recommendation

The Home Retail Group Directors, who have been so advised by Bank of America Merrill Lynch, consider the terms of the Acquisition to be fair and reasonable. In providing its advice to the Home Retail Group Directors, Bank of America Merrill Lynch has taken into account the commercial assessments of the Home Retail Group Directors.

Accordingly, the Home Retail Group Directors intend unanimously to recommend that Home Retail Group Shareholders vote in favour of the Scheme at the Court Meeting and the resolutions relating to the Acquisition to be proposed at the Home Retail Group General Meeting (or if the Acquisition is subsequently structured as a Takeover Offer, accept any Takeover Offer made by Sainsbury's), as the Home Retail Group Directors have irrevocably undertaken to do, or procure, in respect of their own beneficial holdings of Home Retail Group Shares amounting to, in aggregate, 1,990,679 Home Retail Group Shares, representing approximately 0.24 per cent. of the issued ordinary share capital of Home Retail Group plc on the Last Practicable Date.

Further details of these irrevocable undertakings are set out in Appendix 3 to this announcement.

6.         Background to and reasons for the Home Retail Group Directors' recommendation

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 digitally led business. The Transformation Plan addresses competitive challenges, aims to exploit emerging market opportunities and restore sustainable growth. The Homebase Sale, which completed on 27 February 2016, further enables the remaining group to focus on the Transformation Plan.

As stated in Home Retail Group plc's circular dated 2 February 2016 relating to the Homebase Sale, meaningful progress has been made to date on the Transformation Plan, and the Home Retail Group Directors continue to believe that execution of the plan would create a leading digital retailer in the UK and deliver future shareholder value.

For Home Retail Group plc, there will be significant business benefits in the combination with Sainsbury's, including benefits of scale and opportunity to accelerate the work begun under the Transformation Plan, creating opportunities for our employees and other stakeholders. While the Home Retail Group Directors are confident of the future growth prospects of Home Retail Group plc, they believe that the Acquisition provides Home Retail Group Shareholders with a value today which is attractive and reflects the prospects for Home Retail Group plc under the Transformation Plan. In addition, the share component of the Acquisition will enable Home Retail Group Shareholders to benefit from the value creation expected to arise through the combination, including significant synergies.

The Home Retail Group Directors considered the Acquisition in relation to the value and prospects of the underlying business, and the potential medium-term standalone value of Home Retail Group Shares in reaching its conclusion. Accordingly, the Home Retail Group Directors intend unanimously to recommend that Home Retail Group Shareholders vote in favour of the Scheme at the Court Meeting and the resolutions relating to the Scheme and the Acquisition to be proposed at the Home Retail Group General Meeting.

7.         Mix and Match Facility

Home Retail Group Shareholders (other than certain persons in 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 Home Retail Group 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 Acquisition will not be varied as a result of elections under the Mix and Match Facility. Accordingly, satisfaction of elections made by Home Retail Group Shareholders under the Mix and Match Facility will depend on the extent to which other Home Retail Group 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, Home Retail Group 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 in respect of the Acquisition. The Mix and Match Facility is conditional upon Completion.

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

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

8.         Financing of the Acquisition

Sainsbury's intends to finance the cash consideration payable to Home Retail Group Shareholders pursuant to the Acquisition through its existing debt facilities and resources, to be entirely refinanced at a later date through the proposed transfer of the Home Retail Group'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 Acquisition and (ii) allow Sainsbury's to use a proportion of the facilities to finance the cash consideration payable under the Acquisition.

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

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

9.         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 £5,317 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.

10.       Information relating to the Home Retail Group

The Home Retail 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 Home Retail Group offers over 57,000 products ⁽⁵⁾ through Argos and operates a nationwide distribution network across multiple distribution centres and 845 stores ⁽⁶⁾. The Home Retail 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 either that day or a day of their choosing 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 Home Retail Group plc the 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, Home Retail Group plc completed the Homebase Sale.  As at the Last Practicable Date, Home Retail Group plc had a market capitalisation of £1,349 million.

For the 52-week period ended 28 February 2015, the Home Retail 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 Home Retail Group (excluding Homebase) had total assets of £3,514.4 million⁽⁷⁾.

Notes:

(5)           Based on Home Retail Group plc's Investor Pack - October 2015.

(6)           Based on Home Retail Group plc's trading statement for the final eight-week trading period for the financial year ended 27 February 2016, published on 10 March 2016.

(7)           Based on the pro forma statement of net assets in Home Retail Group plc's circular dated 2 February 2016.

11.       Current Trading

(a)        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 22^nd 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 Group 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 Group Profit Estimate"). The Sainsbury's Directors have considered the Sainsbury's Group 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 Group Profit Estimate is set out in full in Part A of Appendix 5 to this announcement, together with the basis of preparation and confirmations by the Sainsbury's Directors.

(b)        Home Retail Group plc

Q4 financial highlights

On 10 March 2016, Home Retail Group plc published a trading statement in respect of the final eight-week trading period for the financial year ended 27 February 2016 (the "Home Retail Group Q4 Trading Statement"), an extract of which is set out below:

"Total sales at Argos increased by 1.9% to £515m. Net new space contributed 3.0%, principally as a result of the 94 digital concessions and collection points opened within the past year. The store estate has increased by a net 90 stores to 845 in the year. Like-for-like sales declined by 1.1% in the period, however the cannibalisation impact on like-for-like sales as a result of the additional new space was around 1% and therefore underlying like-for-like sales were broadly flat in the period.

Sales of non-electrical product categories grew during the period, principally attributable to the performance of furniture and general sports, partially offset by a decline in jewellery. However, sales of electrical products declined during the period, principally driven by video gaming, tablets and white goods, while mobiles continued to deliver good levels of growth.

Internet sales grew by 13% in the period and represented 51% of total Argos sales, up from 46% for the same period last year. Within this, mobile commerce sales grew by 15% to represent 28% of total Argos sales, up from 25% in the prior year.

Argos' gross margin was up approximately 75 basis points."

Home Retail Group Profit Estimate

In the Home Retail Group Q4 Trading Statement, Home Retail Group plc stated that it expects that Home Retail Group Benchmark Profit before Tax for the financial year ended 27 February 2016 will be in line with the current consensus of market expectations of £93 million (the "Home Retail Group Profit Estimate"). The Home Retail Group Directors have considered the Home Retail Group 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.

The Panel Executive has granted a dispensation from the requirement for Home Retail Group plc to publish reports as required by Rules 28.1(a)(i) and (ii), pursuant to Note 2(b) on Rule 28.1 of the Takeover Code.  As required by Note 2(b) on Rule 28.1 of the Code, the Home Retail Group Profit Estimate is set out in full in Part B of Appendix 5 to this announcement, together with the basis of preparation and confirmations by the Home Retail Group Directors.

12.       Management, employees and locations

Both the Sainsbury's Group and the Home Retail Group 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.

The Home Retail Group'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 the Home Retail Group and the Sainsbury's Group, with a view to retaining the Home Retail Group's expertise in digital, channels, product markets and financial services. The leadership team will be determined in due course and in consultation with the Home Retail Group's senior leadership.

In order to achieve some of the expected benefits of the combination of the Sainsbury's Group and the Home Retail 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 the Home Retail Group and the Sainsbury's Group.

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

It is expected that the non-executive directors of Home Retail Group plc will resign from office following Completion and their appointment as Home Retail Group Directors will end in accordance with the terms of their appointment letters.

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

13.       Pension arrangements

Sainsbury's and the trustee of the Home Retail Group Pension Scheme (the "Home Retail Group 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 Home Retail Group plc with the Home Retail Group 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 Home Retail Group plc (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 Home Retail Group Trustee (resulting in £75 million in total, inclusive of the £37.5 million of security agreed with Home Retail Group plc 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 Home Retail Group Trustee has confirmed to Sainsbury's in writing that, having taken advice, it is satisfied that it does not consider the Acquisition, on the terms described herein, to be materially detrimental to the financial support in place for the Home Retail Group Pension Scheme.

14.       Offer‑related arrangements

(a)         Confidentiality Agreement

Sainsbury's and Home Retail Group plc have entered into a confidentiality agreement dated 3 February 2016 pursuant to which each of Sainsbury's and Home Retail Group plc 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 Acquisition, the pension trustees of Sainsbury's and Home Retail Group plc, or if required by applicable laws or regulations.

The confidentiality obligations of each party under the Confidentiality Agreement will terminate on Completion or, in the event that the Acquisition is not Completed, the date that is six months after the Acquisition terminates (or, if Sainsbury's exercises the right to implement the Acquisition by way of a Takeover Offer, the Takeover Offer lapses or is withdrawn).

(b)        Co-operation Agreement

Sainsbury's and Home Retail Group plc have entered into a co-operation agreement dated 1 April 2016 with respect to the implementation of the Acquisition.

Sainsbury's and Home Retail Group plc have agreed to co-operate and provide each other with reasonable information, assistance and access in relation to the filings, submissions and notifications to be made for the process of obtaining all regulatory clearances. Sainsbury's and Home Retail Group plc have also agreed to provide each other with reasonable information, assistance and access for the preparation of the key shareholder documentation.

The Co-operation Agreement records Sainsbury's and Home Retail Group plc's intention to implement the Acquisition pursuant to the Scheme. However, Sainsbury's may implement the Acquisition by way of a Takeover Offer if: (i) Home Retail Group plc's consents; (ii) a third party announces a possible offer or firm intention to make an offer for Home Retail Group plc; or (iii) the Board of Home Retail Group plc withdraws or modifies its unanimous recommendation of (or intention to recommend) the Acquisition.

Sainsbury's is subject to certain customary restrictions on the conduct of its business during the period pending Completion, and which prohibit, among other things: (i) the payment by Sainsbury's of dividends (other than in the ordinary course and consistent with past practice and its dividend policy) and (ii) the allotment of further shares (or rights or options in respect of shares) (other than pursuant to employee share incentive plans, or in order to satisfy options or awards vesting under those plans).

The Co-operation Agreement also contains provisions that will apply in respect of Home Retail Group Employee Share Plans and certain other arrangements for the benefit of employees (see paragraph 15 below).

The Co-operation Agreement will terminate if (amongst other circumstances):

(i)      agreed in writing by Sainsbury's and Home Retail Group plc;

(ii)      the Acquisition has not Completed prior to the Long Stop Date; or

(iii)     upon service of written notice by Sainsbury's to Home Retail Group plc, if: (a) the Scheme Document does not include a unanimous and unconditional recommendation of the Acquisition, or the Home Retail Group Directors otherwise withdraw or modify their recommendation; (b) a third party announces a firm intention to make an offer for Home Retail Group plc which is recommended by the Home Retail Group Directors, or which completes; (c) either the Court Meeting or Home Retail Group General Meeting is not held by the 22nd day after the expected date of such meetings as set out in the Scheme Document (or such later date as may be agreed between Sainsbury's and Home Retail Group plc); (d) the Scheme is not approved by the Home Retail Group Shareholders at the Court Meeting or the Home Retail Group General Meeting; (e) the Court hearing to confirm the New TopCo Capital Reduction is not held within three Business Days of the Court hearing to sanction the Scheme (or such later date as may be agreed between Sainsbury's and Home Retail Group plc); or (f) any Condition (which has not been waived) is invoked (with permission of the Panel) so as to cause the Acquisition not to proceed.

15.       Home Retail Group Employee Share Plans and remuneration

Sainsbury's will make appropriate proposals to participants in the Home Retail Group Employee Share Plans in due course. Participants in the Home Retail Group Employee Share Plans will be contacted separately regarding the effect of the Acquisition on their rights under the Home Retail Group Employee Share Plans and with the details of Sainsbury's appropriate proposals. In summary, awards will vest and options, which are not already exercisable, will become exercisable at the time of the Scheme Court Order and participants will have the opportunity to take part in the Scheme on the same basis as other Home Retail Group Shareholders. Holders of tax-qualifying options will be given the opportunity to exchange their options over Home Retail Group Shares for equivalent options over Sainsbury's Shares as an alternative to exercising their options at or up to six months after the time of the Scheme Court Order. Further details of the terms of such proposals will be included in the Scheme Document.

The Acquisition will extend to any Home Retail Group Shares which are unconditionally allotted, issued or transferred, on or prior to the Scheme Record Time to satisfy the exercise of existing options or vesting of awards under the Home Retail Group Employee Share Plans prior to the Scheme Record Time. Any Home Retail Group Shares allotted, issued or transferred after the Scheme Effective Date under the Home Retail Group Employee Share Plans will, subject to the Scheme becoming Effective, be transferred to Sainsbury's (or its nominee) in exchange for the same consideration as Home Retail Group Shareholders will be entitled to receive under the terms of the Acquisition.

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

Home Retail Group employees will be eligible to be considered for participation in Sainsbury's employee share plans from Completion.

Home Retail Group Employee Share Plans and other remuneration arrangements will operate in the ordinary course up to Completion. Further, the Home Retail Group will operate a part year discretionary bonus plan for the Home Retail Group employees for the part of the financial year of Home Retail Group plc up to Completion.

16.       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.

The Boards of Sainsbury's and Home Retail Group plc have agreed that, if the Acquisition has not Completed by the Sainsbury's Interim Dividend Record Time (and provided that Home Retail Group plc has not paid, declared, approved or made any dividend or distribution since the date of the Original Announcement), Home Retail Group Shareholders will be entitled to receive an interim dividend from Home Retail Group plc for the 26 weeks ending 27 August 2016 in an aggregate amount of not more than one pence per Home Retail Group Share (the "Permitted Home Retail Group plc Interim Dividend"), equivalent to the Home Retail Group plc interim dividend in respect of its financial year ended 27 February 2016.

17.       Disclosure of interests in Home Retail Group

Sainsbury's made a public Opening Position Disclosure in respect of the interests in the relevant securities of Home Retail Group plc 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 Home Retail Group Shares.

Save as disclosed in this announcement and in the Sainsbury's Opening Position Disclosure, as at 30 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 Home Retail Group plc;

(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 Home Retail Group plc; or

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

18.       Structure of the Scheme, the Proposed Capital Returns and the Acquisition

It is intended that the Scheme, the Proposed Capital Returns and the Acquisition will be implemented by way of a three step process summarised below, pursuant to which Sainsbury's will acquire (indirectly, following the introduction of a new holding company of Home Retail Group plc (the "New TopCo") and the subsequent reduction of capital of New TopCo (the "New TopCo Capital Reduction")) the entire issued and to be issued share capital of Home Retail Group plc.

·     Step 1: Introduction of New TopCo

Under the terms of the Scheme, the Scheme Shares will be cancelled in consideration for which the Scheme Shareholders will receive newly issued shares in New TopCo ("New TopCo Shares") and New TopCo will thereby become the sole shareholder of Home Retail Group plc.

To become Effective, the Scheme requires, among other things, the approval of a majority in number of the relevant Home Retail Group Shareholders present and voting in person or by proxy at the Court Meeting, representing not less than 75 per cent. in value of the Scheme Shares voted by such Home Retail Group Shareholders and the passing of the resolutions necessary to implement the Scheme and the Acquisition at the Home Retail Group General Meeting. The Scheme must also be sanctioned by the Court.

Once the necessary approvals from Home Retail Group Shareholders have been obtained and the other Conditions (other than Condition 1(a) in relation to the Long Stop Date,  Condition 1(c) in relation to the New TopCo Capital Reduction and, if Condition 1(d) in relation to Admission of New Sainsbury's Shares has not yet been satisfied, Condition 1(d)) have been satisfied or (where applicable) waived and the Scheme has been sanctioned by the Court, the Scheme will become Effective upon delivery of the Scheme Court Order to the Registrar of Companies. 

Upon the Scheme becoming Effective, it will be binding on all Home Retail Group Shareholders, irrespective of whether or not they attended or voted at the Home Retail Group Meetings.

The Scheme will be governed by English law. The Scheme will be subject to the applicable requirements of the Takeover Code, the Panel, the London Stock Exchange and the FCA.

·      Step 2: New TopCo Capital Reduction

Following the Scheme becoming Effective, New TopCo's share capital will be reduced through a Court procedure (the "New TopCo Capital Reduction") following which the Proposed Capital Returns will be paid to New TopCo Shareholders (i.e. former Home Retail Group Shareholders).

To become Effective, the New TopCo Capital Reduction must be confirmed by the Court.

·     Step 3: transfer of New TopCo Shares to Sainsbury's

Immediately following the New TopCo Capital Reduction becoming Effective, all of the New TopCo Shares will be transferred to Sainsbury's pursuant to the mandatory transfer provisions in the articles of association of New TopCo, in consideration for the Offer Consideration.

Further details on the steps and structure of the Scheme and the New TopCo Capital Reduction will be set out in the Scheme Document. The Panel has consented to Home Retail Group plc posting the Scheme Document more than 28 days after this announcement.  

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 agreement of Home Retail Group plc and, if required, the Panel).

Subject to the satisfaction or waiver of the Conditions, the Acquisition is expected to Complete in the third quarter of 2016.

19.       Conditions

The Acquisition 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 Scheme Document. The Conditions include, amongst other things: (i) approval by a majority in number of Home Retail Group Shareholders who are on the register of members of Home Retail Group plc at the Voting Record Time, present and voting, whether in person or by proxy, at the Court Meeting and at any separate class meeting which may be required (or any adjournment thereof), and who represent not less than 75 per cent. in value of the Home Retail Group Shares voted by such Home Retail Group Shareholders; (ii) the passing of all resolutions required to approve and implement the Scheme and the Acquisition and to approve certain related matters by the requisite majority of Home Retail Group Shareholders at the Home Retail Group General Meeting (or any adjournment thereof); (iii) regulatory clearances being received from the FCA, the GFSC and the CMA; and (iv) the Scheme and the New TopCo Capital Reduction becoming Effective and all other Conditions being fulfilled or (if capable of waiver) waived by no later than the Long Stop Date. If the Conditions have not been satisfied or waived by the Long Stop Date, or such later date as Sainsbury's and Home Retail Group plc may agree and (if required) the Panel and the Court allow, the Acquisition will not proceed.

20.       Delisting and cancellation of trading

It is intended that dealings in Home Retail Group Shares will be suspended at 5.00 p.m. London time on the date of the Court hearing to sanction the Scheme. It is further intended that an application will be made to the London Stock Exchange for the cancellation of the trading of Home Retail Group Shares on its main market for listed securities and the UKLA will be requested to cancel the listing of Home Retail Group Shares on the premium segment of the Official List to take effect on or shortly after the Scheme Effective Date.

Share certificates in respect of the Home Retail Group Shares will cease to be valid and should be destroyed following the Scheme Effective Date. In addition entitlements to Home Retail Group Shares held within the CREST system will be cancelled.

As soon as reasonably practicable after the Completion Date, it is intended that Home Retail Group plc will be re-registered as a private limited company under the relevant provisions of the 2006 Act.

21.       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 Home Retail Group and the New Sainsbury's Shares. The Prospectus will be published at or around the same time as the Scheme Document is posted to Home Retail Group Shareholders.

22.       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 Completion Date.

23.       Fractional entitlements

Fractions of New Sainsbury's Shares will not be allotted or issued to Home Retail Group 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 Completion Date. 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 Home Retail Group 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.

24.       Dealing facility

Subject to any legal or regulatory requirements or restrictions in any Restricted Jurisdictions, Sainsbury's has agreed to arrange a dealing facility for Home Retail Group plc's retail shareholders. Under such dealing facility, the New Sainsbury's Shares to which Home Retail Group plc's retail shareholders become entitled may be sold for their benefit at the standard cost charged by the provider of such facility. Further details of the dealing facility will be included in the Scheme Document.

25.       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/ and on the Home Retail Group's website at https://www.homeretailgroup.com/investor-centre/sainsburys-offer/ by no later than noon (London time) on the Business Day following this announcement:

(a)        this announcement;

(b)        the Co-operation Agreement; and

(c)        the irrevocable undertakings listed in Appendix 3.

In addition, copies of the following documents required to be published pursuant to Rule 26.2 of the Takeover Code have been made available on Sainsbury's website at http://www.j-sainsbury.co.uk/investor-centre/disclaimer/ and on the Home Retail Group's website at https://www.homeretailgroup.com/investor-centre/sainsburys-offer/:

(d)        the Original Announcement;

(e)        the Confidentiality Agreement; and

(f)         the Amendment and Restatement Agreement.

26.       Overseas shareholders

The release, publication or distribution of this announcement in or into jurisdictions other than the UK and the availability of the Acquisition to Home Retail Group 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 Home Retail Group Shareholders to vote their Home Retail Group Shares with respect to the Acquisition at the Home Retail Group Meetings, or to execute and deliver Forms of Proxy appointing another to vote at the Home Retail Group Meetings on their behalf) 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. Home Retail Group Shareholders who are in any doubt regarding such matters should consult an appropriate independent professional adviser in the relevant jurisdiction without delay.

27.       Reserving the right to proceed by way of a Takeover Offer

Sainsbury's reserves the right to implement the Acquisition by way of a Takeover Offer for the entire issued and to be issued share capital of Home Retail Group plc not already held by Sainsbury's as an alternative to the Scheme (with the consent of the Panel and subject to the terms of the Co-operation Agreement). In such an event, the Takeover Offer will be implemented on substantially the same terms as set out in the Original Announcement, including an acceptance condition of 90 per cent. of the shares to which such Takeover Offer relates (or such lesser percentage (being more than 50 per cent.) as Sainsbury's may decide with the consent of the Panel), and the Proposed Capital Returns being structured as a Special Dividend.

28.       General

The Home Retail Group Shares and the New TopCo Shares will be acquired pursuant to the Acquisition 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 the Original Announcement, other than, in the case of New TopCo Shares, the Proposed Capital Returns.

If any dividend or other distribution is announced, declared, made, paid or becomes payable by Home Retail Group plc or New TopCo in respect of the Home Retail Group Shares or the New TopCo Shares on or after the date of the Original Announcement and prior to the Completion Date, other than or in excess of the Permitted Home Retail Group Payments, 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 Permitted Home Retail Group Payments, 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 Completion Date.

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 Acquisition or otherwise. The New Sainsbury's Shares are not being offered to the public by means of this announcement. Home Retail Group Shareholders are advised to read carefully the Prospectus, the Scheme Document and the Form of Proxy once these have been despatched. Any vote in respect of the resolutions to be proposed at the Home Retail Group Meetings to approve the Scheme, the Acquisition and related matters should be made only on the basis of the information contained in the Scheme Document and the Prospectus.

The New Sainsbury's Shares to be issued pursuant to the Acquisition 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 Restricted Jurisdiction or any resident of any Restricted Jurisdiction. The New Sainsbury's Shares to be issued pursuant to the Acquisition are expected to be issued pursuant to the exemption from registration provided by Section 3(a)(10) under the US Securities Act. 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.

Morgan Stanley, UBS and Bank of America Merrill Lynch 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 Acquisition. Clifford Chance LLP is acting as legal adviser to Sainsbury's. Deloitte is acting as reporting accountants to Sainsbury's.

Bank of America Merrill Lynch is acting as financial adviser to Home Retail Group plc. Linklaters LLP is acting as legal adviser to Home Retail Group plc.

The Acquisition will be subject to the Conditions and other terms as set out herein and in Appendix 1 to this announcement, and to the full terms and conditions which will be set out in the Scheme Document.  The Scheme Document will also contain notices of the Court Meeting and the Home Retail Group General Meeting and the expected timetable. The Panel has consented to Home Retail Group plc posting the Scheme Document more than 28 days after this announcement. It is expected that the Prospectus, containing further information in relation to the New Sainsbury's Shares, will be published by Sainsbury's at or around the same time as the Scheme Document.

Enquiries

Sainsbury's

Duncan Cooper, Investor Relations                                            Tel: [phone]

Louise Evans/Anna Harland, Media Relations                             Tel: [phone]

Morgan Stanley (Financial Adviser to Sainsbury's)

Paul Baker                                                                                Tel: [phone]

Ian Hart

Nick Bishop

UBS (Financial Adviser to Sainsbury's)

Hew Glyn Davies                                                                      Tel: [phone]

Anna Richardson Brown

Brunswick (PR Adviser to Sainsbury's)

Katie Ioanilli/Mike Smith                                                            Tel: [phone]

Home Retail Group plc

Richard Ashton, Finance Director                                                Tel: [phone]

Mark Willis, Director of Investor Relations                                                                         

Bank of America Merrill Lynch (Financial Adviser to Home Retail Group plc)

Jonathan Bewes                                                                         Tel: [phone]

Eamon Brabazon

Geoff Iles

Luke McMullan

Finsbury (PR Adviser to Home Retail Group plc)

Rollo Head                                                                                Tel: [phone]

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 Acquisition or otherwise, nor shall there be any sale, issuance or transfer of securities of Sainsbury's or Home Retail Group plc pursuant to the Acquisition or otherwise in any jurisdiction in contravention of applicable law. The Acquisition will be implemented by means of the Scheme Document (or, in the event that the Acquisition is to be implemented by means of a Takeover Offer, the Offer Document), which will contain the full terms and conditions of the Acquisition, including details of how to vote in respect of the Acquisition.

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

Merrill Lynch International ("Bank of America Merrill Lynch"), a subsidiary of Bank of America Corporation, is acting exclusively for Home Retail Group plc in connection with the matters set out in this announcement and for no one else and will not be responsible to anyone other than Home Retail Group plc for providing the protections afforded to its clients or for providing advice in relation to the matters set out in this announcement.

Overseas jurisdictions

The release, publication or distribution of this announcement in or into jurisdictions other than the UK and the availability of the Acquisition to Home Retail Group 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 Home Retail Group Shareholders to vote their Home Retail Group Shares with respect to the Scheme and the Acquisition at the Home Retail Group Meetings, or to execute and deliver Forms of Proxy appointing another to vote at the Home Retail Group Meetings on their behalf) 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 Acquisition 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 Acquisition will not be made, directly or indirectly, in, into or from any Restricted Jurisdiction where to do so would violate the laws and/or regulations in that jurisdiction and no person may vote in favour of the Acquisition from within any Restricted Jurisdiction if to do so would constitute a violation of the laws  and/or regulations of that jurisdiction. Accordingly, unless otherwise determined by Sainsbury's or Home Retail Group plc or required by the Takeover Code, and permitted by applicable law and regulation, copies of this announcement and any formal documentation relating to the Acquisition are not being, and must not be, directly or indirectly, mailed or otherwise forwarded, distributed or sent in, into or from any 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 any 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 Scheme 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. If the Acquisition is implemented by way of a Takeover Offer (unless otherwise permitted by applicable law and regulation), the Takeover Offer may 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 any Restricted Jurisdiction and the Takeover Offer may not be capable of acceptance by any such use, means, instrumentality or facilities or from within any Restricted Jurisdiction.

Further details in relation to Home Retail Group Shareholders in overseas jurisdictions will be contained in the Scheme Document.

Note to US holders of Home Retail Group Shares and Home Retail Group ADR Holders

US holders of Home Retail Group Shares and Home Retail Group ADR Holders should note that the Acquisition relates to the securities of a UK company with a listing on the London Stock Exchange and is proposed to be implemented pursuant to a scheme of arrangement provided for under English company law. A transaction effected by means of a scheme of arrangement is not subject to the tender offer rules or the proxy solicitation rules under the US Exchange Act. Accordingly, the Acquisition will be subject to UK procedural and disclosure requirements and practices applicable to a scheme of arrangement involving a target company in England listed on the London Stock Exchange, which are different from the disclosure requirements of the US tender offer and proxy solicitation rules. The financial information included in this announcement and other documentation related to the Acquisition has been or will have been prepared in accordance with International Financial Reporting Standards and thus may not be comparable to financial information of US companies or companies whose financial statements are prepared in accordance with generally accepted accounting principles in the US. If Sainsbury's exercises its right, in the circumstances provided for in this announcement, to implement the Acquisition by way of a Takeover Offer, such Takeover Offer will only be made in the United States if an exemption from the registration requirements of the US Securities Act is available.

The New Sainsbury's Shares to be issued pursuant to the Acquisition have not been 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, and may only be offered or sold in the United States in reliance on an exemption from registration requirements of the US Securities Act including in the case of the proposed scheme of arrangement, Section 3(a)(10) thereunder.

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 Acquisition, or determined if this announcement is accurate or complete. Any representation to the contrary is a criminal offence in the United States.

It may be difficult for US holders of Home Retail Group Shares and Home Retail Group ADR Holders to enforce their rights and claims arising out of the US federal securities laws, since Sainsbury's and Home Retail Group plc are located in countries other than the United States, and some or all of their officers and directors may be residents of countries other than the United States. US holders of Home Retail Group Shares and Home Retail Group ADR Holders may not be able to sue a non-US company or its officers or directors in a non-US court for violations of US securities laws. Further, it may be difficult to compel a non-US company and its affiliates to subject themselves to a US court's judgement.

Forward-looking statements

This announcement (including information incorporated by reference in this announcement), oral statements made regarding the Acquisition, and other information published by Sainsbury's and Home Retail Group plc 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 Home Retail Group plc 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 Acquisition on the Sainsbury's Group, the Home Retail Group and the Combined Group, the expected timing and scope of the Acquisition 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. Although Sainsbury's and Home Retail Group plc believe that the expectations reflected in such forward-looking statements are reasonable, Sainsbury's and Home Retail Group plc can give no assurance that such expectations 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 Home Retail Group plc) 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, the Home Retail 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 Acquisition is implemented, the inability of the Sainsbury's Group to integrate successfully the Home Retail Group's operations and programmes when the Acquisition is implemented, the Combined Group incurring and/or experiencing unanticipated costs and/or delays, or difficulties relating to the Acquisition when the Acquisition 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 Home Retail Group plc, nor any of their respective 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), neither the Sainsbury's Group nor the Home Retail Group is under or undertakes any obligation, and each of the foregoing 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 Home Retail Group Share for the current or future financial years would necessarily match or exceed the historical published earnings per Sainsbury's Share or Home Retail Group 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 10^th Business Day following the commencement of the Offer Period and, if appropriate, by no later than 3.30 pm (London time) on the 10^th 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 [phone] 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 Restricted Jurisdictions, on the Sainsbury's Group's website at http://www.j-sainsbury.co.uk/investor-centre/disclaimer/ and the Home Retail Group's website at https://www.homeretailgroup.com/investor-centre/sainsburys-offer/ by no later than 12 noon (London time) on the Business Day following this announcement. For the avoidance of doubt, neither the contents of those websites nor the contents of any website accessible from hyperlinks on those websites (or any other websites referred to in this announcement) are incorporated into, or form part of, this announcement.

Sainsbury's Shareholders and Home Retail Group Shareholders may request a hard copy of this announcement by email at [e-mail] or in writing at Shareholder Services, 3^rd Floor, J Sainsbury plc, 33 Holborn, London EC1N 2HT (in the case of Sainsbury's Shareholders) or the Company Secretary of Home Retail Group plc in writing at 489-499 Avebury Boulevard, Milton Keynes MK9 2NW or Capita Asset Services in writing at 40 Dukes Place, London EC3A 7NH (in the case of Home Retail Group Shareholders), in each case during business hours. Sainsbury's Shareholders and Home Retail Group Shareholders may also request that all future documents, announcements and information sent to them in relation to the Acquisition be in hard copy form. A hard copy of such document, announcement (including this announcement) or information will not be sent unless so requested.

Information relating to Home Retail Group Shareholders

Please be aware that addresses, electronic addresses and certain other information provided by Home Retail Group Shareholders, persons with information rights and other relevant persons for the receipt of communications from Home Retail Group plc 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 PROPOSED ACQUISITION

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

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 Acquisition

(a)        The Acquisition will be conditional upon the Scheme and the New TopCo Capital Reduction becoming unconditional and Effective, and all other Conditions being fulfilled or (if capable of waiver) waived, subject to the Takeover Code, by no later than 11.59 p.m. on the Long Stop Date or such later date as Sainsbury's and Home Retail Group plc may agree and (if required) the Panel and the Court allow;

Scheme approval

(b)        The Scheme will be conditional upon:

(i)         (I) the approval by a majority in number of Home Retail Group Shareholders who are on the register of members of Home Retail Group plc at the Voting Record Time, present and voting, whether in person or by proxy, at the Court Meeting and at any separate class meeting which may be required (or any adjournment thereof), and who represent not less than 75 per cent. in value of the Home Retail Group Shares voted by such Home Retail Group Shareholders and (II) such Court Meeting (or any adjournment thereof) being held on or before the 22nd day after the expected date of the Court Meeting to be set out in the Scheme Document in due course (or such later date as Sainsbury's and Home Retail Group plc may agree and the Court may allow);

(ii)        (I) all resolutions required to approve and implement the Scheme and the Acquisition and to approve certain related matters being duly passed by the requisite majorities at the Home Retail Group General Meeting (or any adjournment thereof), and (II) the Home Retail Group General Meeting (or any adjournment thereof) being held on or before the 22nd day after the expected date of the Home Retail Group General Meeting to be set out in the Scheme Document in due course (or such later date as Sainsbury's and Home Retail Group plc may agree); and

(iii)       (I) the sanction of the Scheme by the Court (with or without modification (but subject to such modification being acceptable to Sainsbury's and Home Retail Group plc)) and the delivery of the office copy of the Scheme Court Order to the Registrar of Companies, and (II) the Court hearing to sanction the Scheme being held on or before the 22nd day after the expected date of the Court sanction to be set out in the Scheme Document in due course (or such later date as Sainsbury's and Home Retail Group plc may agree and the Court may allow).

New TopCo Capital Reduction

(c)        (I) the confirmation of the New TopCo Capital Reduction by the Court and the office copy of the Reduction Court Order having been delivered to and registered by the Registrar of Companies, and (II) the Court hearing to confirm the New TopCo Capital Reduction being held on or before the 22nd day after the expected date of such Court hearing to be set out in the Scheme Document in due course (or such later date as Sainsbury's and Home Retail Group plc may agree and the Court may allow);

In addition, Home Retail Group plc and Sainsbury's have agreed that, subject to the requirements of the Panel in accordance with the Takeover Code, the Acquisition will also be conditional upon, and accordingly the necessary actions to make the Scheme Effective will only be taken on, the satisfaction or, where relevant, waiver of the following Conditions:

Admission of New Sainsbury's Shares

(d)        (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

(e)        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 Home Retail Control Group which is (or shall be as at Completion) 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 Scheme or the Acquisition 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 the Original Announcement;

(f)         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 Scheme or the Acquisition in respect of any member of the Wider Home Retail Control Group which is (or shall be as at Completion) 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 the Original Announcement;

Merger control

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

Other Third Party clearances

(h)        other than in respect of Conditions 1(e) to 1(g), 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 Acquisition, 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 Home Retail 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 Acquisition or the acquisition of any shares or other securities in, or control or management of, any member of the Wider Home Retail Group by any member of the Wider Sainsbury's Group or require amendment of the Acquisition;

(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 Home Retail 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 Home Retail Group taken as a whole or the Wider Sainsbury's Group taken as a whole or in the context of the Acquisition (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 Home Retail Group plc (or any member of the Wider Home Retail Group) or on the ability of any member of the Wider Home Retail 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 Home Retail Group in each case to an extent which is material in the context of the Wider Home Retail Group taken as a whole or the Wider Sainsbury's Group taken as a whole or in the context of the Acquisition (as the case may be);

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

(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 Home Retail Group to an extent which is material in the context of the Wider Home Retail Group or the Wider Sainsbury's Group, in either case taken as a whole or in the context of the Acquisition;

(vi)       result in any member of the Wider Home Retail 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 Home Retail Group taken as a whole or in the context of the Acquisition;

(vii)      impose any limitation on the ability of any member of the Wider Sainsbury's Group or any member of the Wider Home Retail 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 Home Retail 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 Home Retail Group, taken as a whole or in the context of the Acquisition; or

(viii)      except as Fairly Disclosed, otherwise affect the business, assets, value, profits, prospects or operational performance of any member of the Wider Home Retail 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 Home Retail 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 Acquisition or in the context of the Acquisition;

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 Acquisition or proposed acquisition of any Home Retail Group Shares or otherwise intervene having expired, lapsed, or been terminated;

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

(j)         other than in respect of Conditions 1(e) to 1(g), all material notifications, filings or applications which are necessary or appropriate having been made in connection with the Acquisition 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 Acquisition or the proposed acquisition of any shares or other securities in, or control of, Home Retail Group plc 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 Home Retail 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 Home Retail 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 Home Retail Group or the Wider Sainsbury's Group in each case taken as a whole or the ability of Sainsbury's to implement the Acquisition and all such Authorisations remaining in full force and effect at the time at which the Acquisition 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;

(k)        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 Acquisition or any acquisition or proposed acquisition of any shares or other securities or control or management of, any member of the Wider Home Retail 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 Acquisition 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 Home Retail 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 Acquisition;

Confirmation of absence of adverse circumstances

(l)         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 Home Retail 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 Acquisition or the proposed acquisition by any member of the Wider Sainsbury's Group of any shares or other securities in Home Retail Group plc or because of a change in the control or management of any member of the Wider Home Retail 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 Home Retail Group taken as a whole or in the context of the Acquisition or to the obligations of any member of the Wider Sainsbury's Group in connection with the financing of the Acquisition:

(i)         any monies borrowed by, or any other indebtedness, actual or contingent of, or any grant available to, any member of the Wider Home Retail 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 Home Retail 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 Home Retail 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 Home Retail 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 Home Retail 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 Home Retail 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 Home Retail 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 Home Retail Group being prejudiced or adversely affected;

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

(viii)      any liability of any member of the Wider Home Retail 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 Home Retail Group

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

(i)         save as pursuant to the Scheme or between Home Retail Group plc and its wholly‑owned subsidiaries or between such wholly‑owned subsidiaries and save for the issue or transfer out of treasury of Home Retail Group Shares or New TopCo Shares on the exercise of options or vesting of awards granted before the date of the Original 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 Home Retail Group Shares or New TopCo Shares out of treasury;

(ii)        recommended, declared, paid or made or proposed to recommend, declare, pay or make any bonus issue, dividend or other distribution (whether payable in cash or otherwise) other than to Home Retail Group plc (and with effect from the Scheme becoming Effective, New TopCo) or one of its wholly‑owned subsidiaries;

(iii)       save as pursuant to the Scheme or between Home Retail Group plc 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 Home Retail Group plc 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 Home Retail Group plc 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 Home Retail Group or in the context of the Acquisition;

(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 Home Retail Group or in the context of the Acquisition, or which is or is reasonably likely to be restrictive on the business of any member of the Wider Home Retail Group or the Wider Sainsbury's Group to an extent which is or is likely to be material to the Wider Home Retail Group or the Wider Sainsbury's Group in each case taken as a whole or in the context of the Acquisition;

(vii)      entered into any licence or other disposal of intellectual property rights of any member of the Wider Home Retail Group which are material in the context of the Wider Home Retail 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 Home Retail Group to an extent which is material in the context of the Wider Home Retail Group or in the context of the Acquisition 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 Home Retail Group which, taken as a whole, are material in the context of the Wider Home Retail Group taken as a whole or in the context of the Acquisition;

(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 Home Retail 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 Acquisition) which is material in the context of the Wider Home Retail Group taken as a whole or in the context of the Acquisition;

(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 Home Retail Group taken as a whole or in the context of the Acquisition;

(xv)      other than pursuant to the Scheme, 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 Home Retail 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 Home Retail 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 Home Retail Group Shareholders in general meeting in accordance with, or as contemplated by, Rule 21.1 of the Takeover Code;

No material adverse change

(n)        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 Home Retail Group to an extent which is material to the Wider Home Retail Group taken as a whole or in the context of the Acquisition or in the context of the obligations of any member of the Wider Sainsbury's Group in connection with the financing of the Acquisition;

(ii)        no litigation, arbitration proceedings, prosecution or other legal proceedings including, without limitation, with regard to intellectual property rights used by the Wider Home Retail Group having been threatened, announced or instituted by or against or remaining outstanding against any member of the Wider Home Retail Group or to which any member of the Wider Home Retail 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 Home Retail Group having been threatened, announced or instituted by or against, or remaining outstanding in respect of, any member of the Wider Home Retail Group which, in any such case, might reasonably be expected to have a material adverse effect on the Wider Home Retail Group taken as a whole or in the context of the Acquisition;

(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 Home Retail Group to an extent which is material to the Wider Home Retail Group taken as a whole or in the context of the Acquisition; 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 Home Retail 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 Home Retail Group taken as a whole or in the context of the Acquisition;

(o)        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 Home Retail 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 Home Retail 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 Home Retail Group taken as a whole or the Acquisition; or

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

Environmental liabilities

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

(i)         any past or present member of the Wider Home Retail 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 Home Retail Group in each case which is material in the context of the Wider Home Retail Group taken as a whole or in the context of the Acquisition; 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 Home Retail Group in each case which is material in the context of the Wider Home Retail Group taken as a whole or in the context of the Acquisition; 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 Home Retail 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 Home Retail Group taken as a whole or in the context of the Acquisition; or

(iv)       circumstances exist (whether as a result of the Acquisition 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 Home Retail 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 Home Retail Group (or on its behalf) or by any person for which a member of the Wider Home Retail 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 Home Retail Group taken as a whole or in the context of the Acquisition; 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 Home Retail Group which claim or claims would be likely, adversely to affect any member of the Wider Home Retail Group and which is material in the context of the Wider Home Retail Group taken as a whole or in the context of the Acquisition;

Intellectual Property

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

(i)         any member of the Wider Home Retail Group losing its title to any intellectual property, or any intellectual property owned by the Wider Home Retail 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 Home Retail 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 Home Retail Group being terminated or varied;

Anti‑corruption and sanctions

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

(i)         any past or present member, director, officer or employee of the Wider Home Retail 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 Home Retail Group or any person that performs or has performed services for or on behalf of any such company for whom the Wider Home Retail Group may be liable or responsible 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

(s)        except as Fairly Disclosed, Sainsbury's not having discovered that any asset of any member of the Wider Home Retail 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(b) to 1(d) inclusive, which cannot be waived. Conditions 1(b)(i) and 1(b)(ii) inclusive must be fulfilled by, and Conditions 1(e) to 1(s) inclusive must be fulfilled or (if capable of waiver) waived by, no later than 11.59 p.m. on the date immediately preceding the date of the Court hearing to sanction the Scheme. The Acquisition will lapse unless the Scheme and the New TopCo Capital Reduction become unconditional and Effective and all other Conditions are fulfilled or (if capable of waiver) waived by 11.59 p.m. on the Long Stop Date or such later date as Sainsbury's and Home Retail Group plc may agree and (if required) the Panel and the Court allow.

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.

If Sainsbury's is required by the Panel to make an offer for Home Retail Group 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 Acquisition as are necessary to comply with the provisions of that Rule.

3.         Implementation by way of a Takeover Offer

Sainsbury's may implement the Acquisition by making, directly or indirectly through a subsidiary or nominee of Sainsbury's, or any member of the Sainsbury's Group, a Takeover Offer for the entire issued and to be issued share capital of Home Retail Group plc not already held by Sainsbury's as an alternative to the Scheme (with the consent of the Panel and subject to the Co-operation Agreement). In such an event, the Takeover Offer will be implemented on substantially the same terms as set out in the Original Announcement, including an acceptance condition of 90 per cent. of the shares to which such Takeover Offer relates (or such lesser percentage (being more than 50 per cent.) as Sainsbury's may decide with the consent of the Panel), and the Proposed Capital Returns being structured as a Special Dividend.

4.         Further terms of the Acquisition

The Acquisition will lapse if there is a Phase 2 CMA Reference before the later of the date of the Court Meeting and the date of the Home Retail Group General Meeting. In such event, Home Retail Group plc will not be bound by the terms of the Scheme.

If any dividend or other distribution is announced, declared, made, paid or becomes payable by Home Retail Group plc or New TopCo in respect of the Home Retail Group Shares or New TopCo Shares on or after the date of the Original Announcement and prior to the Completion Date, other than or in excess of the Permitted Home Retail Group Payments, 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 Permitted Home Retail Group Payments, 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 Home Retail Group Shares and the New TopCo Shares will be acquired pursuant to the Acquisition 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 the Original Announcement, other than, in the case of New TopCo Shares, the Proposed Capital Returns.

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 Completion Date.

Fractions of New Sainsbury's Shares will not be allotted or issued to Home Retail Group 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 Completion Date. 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 Home Retail Group 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 Acquisition to Home Retail Group 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 Home Retail Group Shareholders to vote their Home Retail Group Shares with respect to the Acquisition at the Home Retail Group Meetings, or to execute and deliver Forms of Proxy appointing another to vote at the Home Retail Group Meetings on their behalf) 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 Acquisition 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 Restricted Jurisdiction or any resident of any Restricted Jurisdiction. The New Sainsbury's Shares to be issued pursuant to the Acquisition are expected to be issued pursuant to the exemption from registration provided by Section 3(a)(10) under the US Securities Act. 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 Home Retail Group plc's issued ordinary share capital is based on 813,445,001 Home Retail Group Shares in issue as at the Last Practicable Date;

2.         any references to the existing issued share capital of Sainsbury's are based on 1,924,490,892 Sainsbury's Shares in issue as at the Last Practicable Date;

3.         the market capitalisation for Sainsbury's is based on 1,924,490,892 Sainsbury's Shares in issue and the Closing Price of 276.3 pence per Sainsbury's Share on the Last Practicable Date;

4.         the market capitalisation for Home Retail Group plc is based on 813,445,001 Home Retail Group Shares in issue and the Closing Price of 165.8 pence per Home Retail Group 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 Home Retail Group plc is extracted from the audited consolidated financial statements of the Home Retail Group for the 52-week period ended 28 February 2015, prepared in accordance with IFRS; and

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

Appendix 3
DETAILS OF IRREVOCABLE UNDERTAKINGS

The following Home Retail Group Directors have given irrevocable undertakings in respect of their own beneficial holdings of Home Retail Group Shares (or those Home Retail Group Shares over which they have control).

Name	Total Number of Home Retail Group Shares	Percentage of Home Retail Group plc's existing issued share capital
John Coombe	10,000	0.00
John Walden	649,983	0.08
Richard Ashton	1,160,947	0.14
Michael Darcey	59,719	0.01
Ian Durant	45,421	0.01
Catherine Keers	48,207	0.01
Jacqueline de Rojas	16,402	0.00

Each irrevocable undertaking includes undertakings:

(a)        to vote, or procure the vote, in favour of the Scheme at the Court Meeting and all resolutions relating to the Scheme and the Acquisition at the Home Retail Group General Meeting; and

(b)        if Sainsbury's exercises its right to structure the Acquisition as a Takeover Offer, to accept, or procure the acceptance of, such Takeover Offer.

The obligations of the Home Retail Group Directors under the irrevocable undertakings shall lapse and cease to have effect on and from the earlier of the following occurrences:

(i)         Sainsbury's announces, with the consent of the Panel, that it does not intend to proceed with the Acquisition and no new, revised or replacement Scheme or Takeover Offer is announced by Sainsbury's in accordance with Rule 2.7 of the Code; or

(ii)         the Scheme or the Takeover Offer (as applicable) does not become effective, lapses or is withdrawn in accordance with its terms, save in circumstances where the Scheme or the Takeover Offer (as applicable) does not become effective, lapses or is withdrawn and Sainsbury's publicly confirms its election to implement the Acquisition by way of a Scheme (if originally Takeover Offer) or a Takeover Offer (if originally a Scheme) in each case in accordance with the terms of the Co-operation Agreement.

Appendix 4
REVISED quantified Financial benefits statement

The Original Announcement included revised statements of estimated cost savings and synergies expected to arise from the Acquisition (together, the "Revised Quantified Financial Benefits Statement"), which was repeated in paragraph 4 of this announcement.  A copy of the Revised Quantified Financial Benefits Statement is set out below ⁽⁸⁾:

Note:

(8)           References to "Offer" and "HRG" in the Revised Quantified Financial Benefits Statement set out in the Original Announcement have been replaced with "Acquisition" and "Home Retail Group plc" respectively.

"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. ⁽²⁾

Note:

(2)           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 Home Retail Group plc 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 Home Retail Group plc. 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 Acquisition and could not be achieved independently of the Acquisition. 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 Acquisition, 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 the Home Retail Group 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 the Home Retail Group, 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 Home Retail 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 Home Retail Group plc 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 and confirmations

As required by Rule 28.1(a) of the Takeover Code, Deloitte, as reporting accountants to Sainsbury's, provided a report on 18 March 2016 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, provided a joint report on 18 March 2016 stating that, in their view, the Revised Quantified Financial Benefits Statement has been prepared with due care and consideration. Copies of these reports were included in Appendix 3 to the Original Announcement.

The Sainsbury's Directors have confirmed that there have been no material changes to the Revised Quantified Financial Benefits Statement since 18 March 2016 and the Revised Quantified Financial Benefits Statement remains valid. Deloitte, Morgan Stanley and UBS, have also confirmed to Sainsbury's that the reports they produced in connection with the Revised Quantified Financial Benefits Statement (copies of which were set out in Appendix 3 to the Original Announcement) continue to apply.

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 Home Retail Group plc 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.

Appendix 5
PROFIT ESTIMATES

PART A
SAINSBURY'S GROUP PROFIT ESTIMATE

1.        Sainsbury's Group 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 Group 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 Group 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 Group 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 Group Profit Estimate excludes the costs and ongoing impact of the Acquisition.

3.        Sainsbury's Directors' confirmation

The Sainsbury's Directors have considered the Sainsbury's Group 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.

PART B
HOME RETAIL GROUP PROFIT ESTIMATE

1.        Home Retail Group Profit Estimate

In the Home Retail Group Q4 Trading Statement, Home Retail Group plc stated that it expects that Home Retail Group Benchmark Profit before Tax for the financial year ended 27 February 2016 will be in line with the current consensus of market expectations of £93 million (the "Home Retail Group Profit Estimate").

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

The Home Retail Group's tax charge for the financial year ended 27 February 2016 will be calculated using the effective tax rate applicable at the balance sheet date using tax rates enacted or substantively enacted by the balance sheet date.

The Home Retail Group Profit Estimate excludes the impact of the proposed disposal of Homebase and related transaction costs.

2.        Basis of Preparation

The Home Retail Group Profit Estimate has been properly compiled on the basis stated below, on a basis consistent with the accounting policies of Home Retail Group plc, which are in accordance with IFRS and are those which will be applicable for the financial year ended 27 February 2016.

Benchmark Profit before Tax is defined as profit before amortisation of acquisition intangibles, post-employment benefit scheme administration costs, store impairment and onerous lease charges or releases and costs or income associated with store closures, exceptional items, financing fair value re-measurements, financing impact on post-employment benefit obligations, the discount unwind on non-benchmark items and taxation. Benchmark Profit before Tax is a non-IFRS metric and therefore may not be directly comparable with similarly titled measures used by other companies, however, the Home Retail Group Directors believe that Benchmark Profit before Tax is considered useful in that it provides investors with an alternative means to evaluate the underlying performance of the Home Retail Group's operations.

The Home Retail Group Directors prepared the Home Retail Group Profit Estimate based on the unaudited interim results of the Home Retail Group for the 26 weeks to 29 August 2015 and the unaudited management accounts for the 26-week period to 27 February 2016.

3.        Home Retail Group Directors' confirmation

The Home Retail Group Directors have considered the Home Retail Group 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 Home Retail Group plc's accounting policies.

Appendix 6
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 Home Retail Group"	the annual report and audited accounts of the Home Retail 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 direct or indirect acquisition by Sainsbury's of the entire issued and to be issued share capital of Home Retail Group plc not already owned by or on behalf of the Sainsbury's Group pursuant to the Scheme (and subsequent steps contemplated by the Scheme), or should Sainsbury's so elect, by means of a Takeover Offer
"Additional Home Retail Group Payment"	2.8 pence per Home Retail Group Share proposed to be paid to Home Retail Group Shareholders in lieu of a final dividend in respect of Home Retail Group plc'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 Home Retail Group plc under Rule 2.4 of the Takeover Code on 2 February 2016 setting out the key financial terms of a possible offer for Home Retail Group plc
"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 8 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
"Bank of America Merrill Lynch"	Merrill Lynch International, a subsidiary of Bank of America Corporation
"Benchmark Profit before Tax"	profit before amortisation of acquisition intangibles, post-employment benefit scheme administration costs, store impairment and onerous lease charges or releases and costs or income associated with store closures, exceptional items, financing fair value re-measurements, financing impact on post-employment benefit obligations, the discount unwind on non-benchmark items and taxation
"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
"Co-operation Agreement"	the co-operation agreement dated 1 April 2016 between Sainsbury's and Home Retail Group plc, as described in paragraph 14(b) of this announcement
"Combined Group"	the enlarged group following Completion of the Acquisition, comprising the Home Retail Group and the Sainsbury's Group
"Completion" or "Complete"	in the context of the Acquisition: (i) if the Acquisition is implemented pursuant to the Scheme, the Scheme and the New TopCo Capital Reduction having become Effective and all other Conditions having been fulfilled or (if capable of waiver) waived; or (ii) if the Acquisition is implemented by way of a Takeover Offer, the Takeover Offer having become or been declared unconditional in all respects
"Completion Date"	the date on which Completion of the Acquisition occurs
"Conditions"	the conditions of the Acquisition, as set out in Appendix 1 to this announcement and to be set out in the Scheme Document
"Confidentiality Agreement"	the confidentiality agreement dated 3 February 2016 between Sainsbury's and Home Retail Group plc, as described in paragraph 14(a) of this announcement
"Court"	the High Court of Justice in England and Wales
"Court Meeting"	the meeting of Home Retail Group Shareholders to be convened at the direction of the Court pursuant to Part 26 of the 2006 Act at which a resolution will be proposed to approve the Scheme, including any adjournment thereof
"CREST"	the system for the paperless settlement of trades in securities and the holding of uncertificated securities operated by Euroclear
"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
"Effective"	(i) in respect of the Scheme, the Scheme having become effective pursuant to its terms; (ii) in respect of the New TopCo Capital Reduction, the Reduction Court Order having been delivered to and registered by the Registrar of Companies
"Euroclear"	Euroclear UK & Ireland Limited
"Exchange Ratio"	0.321 Sainsbury's Shares for each Home Retail Group Share which, following the Scheme becoming Effective, shall be interpreted to mean 0.321 Sainsbury's Shares for each New TopCo Share
"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 Home Retail Group plc: (i) prior to the date of the Original Announcement by or on behalf of Home Retail Group plc to Sainsbury's or Sainsbury's financial, accounting, tax or legal advisers (specifically as Sainsbury's advisers in relation to the Acquisition); (ii) in the 2015 Annual Report and Accounts of the Home Retail Group; (iii) in the circular dated 2 February 2016 published by Home Retail Group plc in connection with the Homebase Sale; (iv) in a public announcement made in accordance with the Disclosure Rules and Transparency Rules by Home Retail Group plc after 28 February 2015 and prior to the date of the Original Announcement; or (v) in the Original Announcement or 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
"Form of Election"	the form of election in relation to the Mix and Match Facility which shall accompany the Scheme Document
"Form of Proxy"	the form of proxy in connection with each of the Court Meeting and the Home Retail Group General Meeting which shall accompany the Scheme Document
"FSMA"	the Financial Services and Markets Act 2000 (as amended from time to time)
"GFSC"	the Guernsey Financial Services Commission
"Home Retail Group"	Home Retail Group plc (and with effect from the Scheme becoming Effective, New TopCo) and its subsidiary undertakings from time to time, and where the context permits, each of them
"Home Retail Group ADR Holders"	holders of Home Retail Group ADRs
"Home Retail Group ADRs"	sponsored level 1 American Depositary Receipts (or, as the context requires, the American Depositary Shares) of Home Retail Group plc for which Citibank N.A. acts as depositary
"Home Retail Group Directors"	the directors of Home Retail Group plc
"Home Retail Group Employee Share Plans"	the Home Retail Group Deferred Bonus Plan, the Home Retail Group Performance Share Plan, the Home Retail Group Tax Qualified Share Option Plan and the Home Retail Group UK Tax Qualified Sharesave Plan
"Home Retail Group General Meeting"	the general meeting of Home Retail Group Shareholders to be convened to consider and if thought fit pass, inter alia, certain resolutions in relation to the Scheme and the Acquisition, including any adjournments thereof
"Home Retail Group Meetings"	the Court Meeting and the Home Retail Group General Meeting
"Home Retail Group Profit Estimate"	the profit estimate of the Home Retail Group for the financial year ended 27 February 2016 as set out in paragraph 1 of Part B of Appendix 5 to this announcement
"Home Retail Group Q4 Trading Statement"	the trading statement published by Home Retail Group plc on 10 March 2016 in respect of the final eight-week trading period for the financial year ended 27 February 2016
"Home Retail Group Share(s)"	the existing unconditionally allotted or issued and fully paid ordinary shares of 10 pence each in the capital of Home Retail Group plc and any further shares which are unconditionally allotted or issued but excluding in both cases any such shares held or which become held in treasury
"Home Retail Group Shareholder(s)"	holders of Home Retail Group Shares and with effect from the Scheme becoming Effective, holders of New TopCo Shares, as the context requires
"Homebase Payment"	25 pence per Home Retail Group Share to be paid to Home Retail Group Shareholders, reflecting the £200 million return to shareholders in respect of the Homebase Sale, as announced by Home Retail Group plc on 18 January 2016
"Homebase Sale"	the sale of the Homebase business by Home Retail Group (UK) Limited to Bunnings (UK & I) Holdings Limited pursuant to the Homebase Sale Agreement, as announced by Home Retail Group plc on 18 January 2016 and which completed on 27 February 2016
"Homebase Sale Agreement"	the share purchase agreement entered into between, amongst others, Home Retail Group plc, Home Retail Group (UK) Limited and Bunnings (UK & I) Holdings Limited on 17 January 2016 in relation to the Homebase Sale
"IAS"	International Accounting Standard
"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"	31 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
"Long Stop Date"	29 March 2017
"Mix and Match Facility"	the facility under which Home Retail Group 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 Home Retail Group Shares to the extent that other such Home Retail Group 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 Acquisition
"New TopCo"	a company to be incorporated in due course which will hold the entire issued ordinary share capital of Home Retail Group plc upon the Scheme becoming Effective
"New TopCo Capital Reduction"	the proposed reduction of capital of New TopCo through a Court procedure under Part 17 of the 2006 Act, as described in paragraph 18 of this announcement
"New TopCo Shareholders"	holders of New TopCo Shares
"New TopCo Shares"	ordinary shares in the capital of New TopCo
"Offer Consideration"	the consideration offered by Sainsbury's under the terms of the Acquisition in the form of 55 pence in cash and 0.321 New Sainsbury's Shares for each Home Retail Group Share, which, following the Scheme becoming Effective, shall be interpreted to mean 55 pence in cash and 0.321 Sainsbury's Shares for each New TopCo Share
"Offer Document"	if Sainsbury's elects to implement the Acquisition by way of a Takeover Offer, the document to be sent by Sainsbury's to Home Retail Group Shareholders containing, amongst other things, the terms and conditions of the Takeover Offer
"Offer Period"	the period which commenced on 5 January 2016 and ending on the later of (i) the Completion Date; or (ii) the date on which the Acquisition lapses or is withdrawn (or such other date as the Panel may decide)
"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 Acquisition if the person concerned has such a position, as defined in Rule 8 of the Takeover Code
"Original Announcement"	the announcement by Sainsbury's on 18 March 2016 setting out the terms of the Acquisition, which was originally to be implemented by way of a Takeover Offer
"Panel"	the Panel on Takeovers and Mergers
"Permitted Home Retail Group Payments"	the aggregate of the Proposed Capital Returns and the Permitted Home Retail Group plc Interim Dividend
"Permitted Home Retail Group plc Interim Dividend"	has the meaning given to it in paragraph 16 of this announcement
"Phase 2 CMA Reference"	a reference of the Acquisition to the chair of the CMA for the constitution of a group under Schedule 4 to the Enterprise and Regulatory Reform Act 2013
"Proposed Capital Returns"	the proposed capital return of 27.8 pence per Home Retail Group Share, representing the sum of Homebase Payment and the Additional Home Retail Group Payment, to be effected through the New TopCo Capital Reduction
"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 Acquisition
"Prudential Regulation Authority"	Prudential Regulation Authority or its successor from time to time
"Reduction Court Order"	the Court order confirming the New TopCo Capital Reduction
"Registrar of Companies"	the Registrar of Companies in England and Wales
"relevant securities"	shall be construed in accordance with the Takeover Code
"Restricted Jurisdiction"	any jurisdiction where local laws or regulations may result in a significant risk of civil, regulatory or criminal exposure if the Acquisition is made, or information concerning the Acquisition is sent or made available to Home Retail Group Shareholders in that jurisdiction
"Revised Quantified Financial Benefits Statement"	the statement of revised estimated synergies arising from the Acquisition as set out in paragraph 4 and Appendix 4 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 Group Profit Estimate"	the profit estimate of the Sainsbury's Group for the 52-week period ended 12 March 2016 as set out in paragraph 1 of Part A of Appendix 5 to this announcement
"Sainsbury's Interim Dividend Record Time"	the date and time determined by the Sainsbury's Directors as being the time at which Sainsbury's Shareholders on the share register of Sainsbury's are entitled to receive the interim dividend from Sainsbury's for the 28 weeks ending 24 September 2016
"Sainsbury's Share(s)"	the existing Sainsbury's ordinary shares of 284/7pence each in the capital of Sainsbury's
"Scheme"	the proposed scheme of arrangement under Part 26 of the 2006 Act between Home Retail Group plc and the holders of the Home Retail Group Shares, with or subject to any modification, addition or condition approved or imposed by the Court and agreed by Home Retail Group plc and Sainsbury's
"Scheme Court Order"	the order of the Court sanctioning the Scheme under Part 26 of the 2006 Act
"Scheme Document"	the document to be sent to Home Retail Group Shareholders and persons with information rights containing, amongst other things, the Scheme and notices of the Home Retail Group Meetings and proxy forms in respect of the Home Retail Group Meetings
"Scheme Effective Date"	the date on which the Scheme becomes Effective
"Scheme Record Time"	6.00 p.m. on the date of the Court hearing to sanction the Scheme
"Scheme Shareholders"	holders of Scheme Shares
"Scheme Shares"	all Home Retail Group Shares: (i) in issue at the date of the Scheme Document; (ii) (if any) issued after the date of the Scheme Document but before the Voting Record Time; and (iii) (if any) issued at or after the Voting Record Time and before the Scheme Record Time in respect of which the original or any subsequent holders thereof are, or shall have agreed in writing to be, bound by the Scheme
"SEC"	the US Securities and Exchange Commission
"Special Dividend"	if Sainsbury's elects to implement the Acquisition by way of a Takeover Offer, the special dividend representing the sum of the Homebase Payment and the Additional Home Retail Group Payment expected to be (subject to approval by the Home Retail Group plc Board) paid by Home Retail Group plc to the Home Retail Group Shareholders, as further described in the Original Announcement
"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
"Takeover Offer"	if Sainsbury's so elects, the offer by Sainsbury's for the entire issued and to be issued share capital of Home Retail Group plc by means of a takeover offer, 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
"Transformation Plan"	the five-year plan launched by the Home Retail Group in October 2012 to reinvent Argos as a digital retail leader
"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" or "United States"	the United States of America, its possessions and territories, all areas subject to its jurisdiction or any subdivision thereof, any State of the United States and the District of Columbia
"US Exchange Act"	the US Securities Exchange Act of 1934, as amended
"US Securities Act"	the US Securities Act of 1933, as amended and the rules and regulations promulgated thereunder
"Voting Record Time"	the time which shall be set out in the Scheme Document as being the time at which Home Retail Group Shareholders must be on the register in order to be entitled to vote at the Home Retail Group Meetings
"Wider Home Retail Control Group"	the Wider Home Retail 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 Home Retail 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 Home Retail Group has significant influence (within the meaning used in section 181(2)(c) of FSMA)
"Wider Home Retail Group"	Home Retail Group and associated undertakings and any other body corporate, partnership, joint venture or person (in each case, from time to time) in which Home Retail Group plc (and with effect from the Scheme becoming Effective, New TopCo) 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 "pence" 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.

 

END

 

 

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