Sainsbury’s has tabled an improved deal worth up to £1.3billion to take over Argos owner Home Retail Group.

The supermarket giant has made a “possible offer” of 161.3p per Home Retail Group share, involving a mix of cash and shares which, if accepted, would leave Home Retail Group shareholders owning about 12% of the combined group.

Home Retail Group said today that it still “believes in the prospects for the standalone company” but the possible offer provided an “attractive opportunity” for its shareholders to receive full valuation for their shares.

However, the sale of Home Retail Group’s DIY chain, Homebase, to Australian business Wesfarmers is said to be a condition of the possible offer by Sainsbury’s.

The £340million deal, which will see the Homebase name replaced by the Bunnings Warehouse brand, is still awaiting the approval of shareholders.

Sainsbury’s had until 5pm today to make a fresh bid for Home Retail Group after its initialy £1bn offer was rebuffed in November.

The companies have now agreed a three-week extension to the deadline, until 5pm on Tuesday, February 23, in order to complete due diligence on the proposed offer.

Sainsbury’s said previously that it could could close a raft of Argos stores and relocate them within its supermarkets if the deal was given the go-ahead. Retail experts believe between 150 and 200 Argos stores could be affected.

The supermarket chain has already been working in partnership with Home Retail Group to test a number of Argos concessions within its stores. It believes the combination of the two companies would create a strong food and non-food retailer with strong heritages.

If approved, the combination of the two companies would trigger synergies of about £120mn in the third full year after completion of the deal, Sainsbury’s said.

It is estimated that about a half of the savings will be found by relocating Argos stores into Sainsbury’s supermarkets as concessions, as well as launching new Argos concessions and expanding Sainsbury’s click and collect service.

It also expects to deliver a third of the savings by removing back office functions which overlap between the two companies and by selling Sainsbury’s clothing and homeware products to Argos customers.

The supermarket said that, in order to achieve the savings, it would face a one-off costs of about £140m, split equally over three years.