Sainsbury’s shares jump 11% after takeover bid speculation

Shares in Sainsbury’s shot up to the top of the FTSE 100 leaderboard today after speculation that Britain’s second-biggest supermarket was being circled by private equity predators.

Major American buyout group Apollo, which missed out on the takeover of Asda last year, is thought to be among the firms eyeing up Sainsbury’s, according to reports in The Sunday Times.

Shares in the FTSE 100-listed grocer rose 11.5 per cent to 328.6p in early trading. The stock has had a good run over the past couple of years, having risen by 75 per cent in the last 12 months and by 60 per cent since just before the start of the pandemic.

The rumours come amid a bidding frenzy for UK supermarkets. Last week, Morrisons agreed to a £7billion takeover by US private equity giant Clayton, Dubilier and Rice.   

This gazumped an existing £6.7billion deal with a group called Fortress – although Fortress has indicated it could put in an even higher bid.

Shares in Morrisons are up 0.1 per cent to 291.40 this morning, which is around 6p above the latest CD&R offer, suggesting that investors bet there is more to come.

Potential suitor Apollo last year missed out on a takeover of Asda, which was instead bought by billionaire petrol station tycoons the Issa brothers and their private equity backers for £6.8billion. 

But it still remains in talks to join the Fortress-led consortium bidding for Morrisons and any involvement in that deal may preclude a move for Sainsbury’s, according to the report. 

A swoop on Sainsbury’s could mean three of the ‘Big Four’ supermarkets – Tesco, Sainsbury’s, Morrisons and Asda – would be owned or joint-owned  by private equity firms.

Sainsbury’s is now worth around £6.9billion, although many think it is undervalued. 

It has 189,000 employees and 1,400 stores. 

Neil Wilson, an analyst at Markets.com, said: ‘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 – more than its current market cap by decent margin.

‘The Argos tie-up is another long-term growth lever and provides further scale, while profits are on the up again in the wake of the pandemic, and net debt has come down.

‘It’s hard to beat those reliable cash flows – even without a big sale & leaseback plan the supermarkets are generating the kind of yield that is hard to get elsewhere.’