LONDON: Sainsbury's, Britain's second-biggest supermarket, has agreed to buy Argos-owner Home Retail for 1.3 billion pounds ($1.87 billion) to boost its online credentials and expand beyond the cut-throat food sector.

Home Retail, which said in January it had rejected an earlier undisclosed offer from Sainsbury's, said it was now willing to recommend a bid which, including a proposed capital return, implied a value of around 161.3 pence per Home Retail share.

Shares in Home Retail, which were trading at about 100 pence prior to news of Sainsbury's initial approach, closed Monday at 152.9 pence.

Britain's retail sector has been hammered in recent years by the growth of discount groups and online competition. While Sainsbury's has fared better than most, it believes it needs to improve its online sales and enhance its delivery capabilities.

The deal had been made easier by Home Retail's move last month to sell its Homebase do-it-yourself chain to Australia's Wesfarmers for 340 million pounds, leaving it with just the Argos business that Sainsbury's covets.

Under the terms of the offer Home Retail shareholders will receive 0.321 new Sainsbury's shares and 55 pence in cash for each of their shares.

In addition they will receive, prior to completion of the deal, a capital return of about 25 pence per share and payment of 2.8 pence in lieu of a final dividend.

Earlier this month Home Retail reported poor sales over Christmas for Argos.