Following reports during the weekend of possible acquisition bids by private equity firms for the second largest British supermarket chain Sainsbury’s could exceed more than 7 billion pounds ($9.6 billion), stock price of the chain surged by more than 14 per cent on Monday.
According to reports on Sunday, acquisition bids for Sainsbury’s were placed by buyout groups including New York-based Apollo Global Management.
There were no comments available on Monday from Sainsbury’s, whose market value increased to about 6.9 billion pounds at Friday’s close.
The rise in the stocks of the company on the London Stock Exchange on Monday reached its highest since February 26, 2014.
The reports of the strong interest in Sainsbury’s were further signals of the high interest for British companies across industries including retail, defence and healthcare of corporate America.
Currently, at least two US groups are targeting a takeover of Britain’s fourth largest supermarket chain, Morrisons.
Apollo’s interest in Sainsbury’s was exploratory, said the Sunday Times, adding that the US firm was in continued negotiations to join a consortium led by Fortress Investment Group for acquiring Morrisons.
“Sainsbury’s is undeniably a good target for private equity with a considerable store estate, with the company having more than $10bn in property assets,” Markets.com analyst Neil Wilson said via email. “The supermarkets are generating the kind of yield that is hard to get elsewhere.”
The founding of Sainsbury’s can be traced back to as far back as 1869 when a small shop was opened in London’s Drury Lane by John James Sainsbury and his wife Mary Ann. With a 15 per cent market share of the UK grocery market, Sainsbury’s is the second largest grocer following the market leader Tesco which has a 27 per cent market share.
With an almost 15 per cent stake in the voting rights of the company, Qatar’s sovereign wealth fund is the largest shareholder in Sainsbury’s while about 10 per cent of the company is owned by Czech billionaire Daniel Kretinsky.
There were reports of bond investors not purchasing Sainsbury’s bonds last month as there were rumours in the market of the company soon becoming a target of a takeover.
Private equity buyouts typically pay for acquisitions with debt that is then put on the target company’s balance sheet – known as a leveraged buyout – which can hit the target’s credit ratings and bond prices.
The rumours of a buyout of the British grocer have floated around in the market for quite some time now but analysts believe that the chances of a deal was bright this year as the company is in a relatively defensive sector and has reliable cash flow while also owning many of its assets.
Apollo and other bidders could go after Sainsbury’s, if they did not end up participating in any Morrisons deal, said Shore Capital analysts.
(Adapted from FinancialPost.com)