Investment manager Old Mutual (LON:OML) has come out in support of Sainsbury's bid for Home Retail (LON:HOME) after initially putting pressure on the supermarket to increase its offer for the Argos owner.
Old Mutual Global Investors, which owns a 3.6% stake in Home Retail, had called on the supermarket chain to pay 200p per share for the catalogue retailer before Tuesday's offer.
But Old Mutual said in a statement to the London Stock Exchange on Wednesday that it regarded the £1.3bn bid by Sainsbury's as "fair".
The statement said that since Old Mutual made its comments, there had been the agreed £340mln disposal of Homebase by Home Retail, its update on Christmas trading and more detail on the opportunities for Home Retail within the Sainsbury group.
Last month, Home Retail said in a trading update that annual pre-tax profits would be around the bottom of market forecasts after "mixed" trading at Argos since the end of August last year.
"Following discussions with representatives of both parties, we have concluded that the terms of the agreed offer are fair, reflective of the future potential of the Argos business and the risk still associated with the transformation plan," the statement said.
Sainsbury's on Tuesday announced that it had reached agreement with Home Retail to offer the latter's shareholders 0.321 new Sainsbury shares plus 55p in cash for each Home Retail share.
Some Home Retail investors, such as Schroders, had called on the supermarket group to offer at least 165p per share, which would have valued the group at about £1.34bn.
Shore Capital analyst Darren Shirley said in a note out on Wednesday that the deal looked financially compelling.
But he added that the broker had concerns including the potential for the takeover to distract Sainsbury's management from the core supermarket business, as well as the threat from a potential recovery by rivals including Tesco (LON:TSCO).
Shirley, who has a 'hold' on the shares, said: "Ahead of further evidence we lack the conviction to turn positive on Sainsbury’s, though we do see considerable merit in the deal and see the scope for material share price appreciation if targets can be achieved.