Sainsbury’s hits seven year high on takeover chatter

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J Sainsbury PLC (LSE:SBRY) shares leapt over 14% to a seven-year high after weekend reports it is a target of private equity group Apollo, which missed out on the takeover of Asda last year.


The article said the interest was exploratory but analysts suggested Sainsbury’s would potentially be a good fit for private equity.


Neil Wilson at markets.com noted Sainsbury’s shares have already risen 40% this year amid heavy speculation it would be the next in the private equity firing line.


“Sainsbury’s is undeniably a good target for private equity with a considerable store estate, with the company having more than US$10bn in property assets – more than its current market cap by a 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.”


JP Morgan detailed how Sainsbury’s has been on the radar of private equity firms for some time.


In 2007, CVC had to abandon its pursuit after failing to convince the Sainsbury family to sell.


The Qataris (QIA) thereafter built up a 25% stake and tried to buy the rest before abandoning a GBP10.6 bn bid.


In 2016, the Qataris, CVC and Brookfield formed a consortium to take the grocery chain private but abandoned it after Sainsbury’s acquired Argos.


QIA subsequently sold more than GBP300mln worth of shares to Daniel Kretinsky in April.


The Czech investor has also acquired stakes in French retailer Casino and German food wholesaler Metro notes JPM and between them he and the Qataris own around 25% of Sainsbury’s shares.


JPM also says it is struggling to see the value in Sainsbury’s at this price.


Multiples are high especially for a grocer is that is leveraged and ex- growth with no margin upside.


Shore Cap is the most sceptical but says if Apollo does not participate in the auction for Morrisons’ it cannot discount that it, or some other mega-finance house, will consider looking at Sainsbury’s.


Apollo has US$88bn of assets under management so has plenty of cash and last year it invested US$1.75bn in US grocer Albertsons, owner of the Safeway (NYSE:SWY) supermarket chain.


Accordingly, “expect the noise to continue,” says the broker.


Sainsbury shares jumped 14% to 337p, valuing it at around GBP7.8bn.

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