Shares in Sainsbury (LON:SBRY) were off again on Wednesday as investors questioned whether its bid for Home Retail would deliver the goods.
The stock was 0.5% adrift at 240.9p as analysts continued to muse over the possible ups and downs of a deal.
Sainsbury's shocked the market on Tuesday by revealing that it had approached the Argos and Homebase owner in November about a cash-and-share bid.
Home Retail (LON:HOME) dismissed it as too low and Sainsbury's said it was considering next steps before a "put-up-or-shut-up" deadline on February 2.
The supermarket group said it was contemplating the tie-up to boost its presence in the burgeoning home delivery market.
Sainsbury's said it would "bring together multi-channel capabilities and delivery networks for fast, flexible and reliable delivery to store or to home across a wide range of food and non-food products."
But its shares sank 5% after the news as investors queried the rationale and feasibility of the deal.
Shore Capital voiced "more reservations than jubilations", saying Sainsbury's would be acquiring a struggling business facing competition from the likes of Amazon.
"Accordingly, following this surprise announcement, Shore Capital needs further convincing that this is the right move for Sainsbury’s," the broker said in a note.
Sainsbury's has impressed recently by doing better than some rivals in the battle against discounters.
Cavendish Corporate Finance said that had put it in a stronger position to make such a move.
But Cavendish partner and head of consumer, Jonathan Buxton, said the real challenge would be to successfully integrate a sprawling non-food retailer facing competition in its own sector.
Buxton said: "At the heart of the present troubles lies a cumbersome real estate burden – hence optimising combined retail space through closer ties with Argos, the focus of the deal, could spell one way out of Sainsbury’s predicament.
"Home Retail's refusal, however, is cause for concern as Sainsbury may with a revised offer risk paying an excessively high price for the ailing group."
Ketan Patel, associate fund manager at EdenTree Investment Management, said the deal could go ahead but there was the prospect of rival interest.
He also said it was unlikely to be cheap for Sainsbury's, which may have to pay up to £1.3bn, and it could make its business more complex.
"Surely they should be concentrating on running a supermarket, so when you start adding things on, it's going to get more difficult," he said.
"There are a lot more questions that investors are going to ask."
In November, speculation swirled that a number of private equity firms were eyeing Home Retail for a possible £1bn takeover bid.
RBC Capital Markets said it was not surprised to see further bid speculation, although it was not expecting to see interest from a trade buyer such as Sainsbury’s.
But the broker said a deal could make sense, given that Sainsbury's is already trialling Argos concessions in its shops and that it previously owned Homebase.
RBC analyst Claire Huff said there would be huge potential for store rationalisation by shutting existing Argos stores and potentially converting some to food space.
She said: "We do think there is some strategic rationale behind a potential acquisition."
But Huff added: "On the other hand, execution risk would undoubtedly be high and we also think there might be some brand issues given the lower socio-demographic profile of Argos customers."