Sainsbury’s could be next in line for private equity interest

With Morrisons already in a bidding war, UK supermarkets are looking attractive to returns-hungry investors

Last modified on Sun 22 Aug 2021 11.47 EDT

Sainsbury’s could be on the shopping list of private equity outfits as the race to buy Morrisons highlights the attractiveness of the big supermarket chains to investors.

Last week the buyout firm Clayton, Dubilier & Rice (CD&R) won the backing of the Morrisons board for its £7bn offer to buy the UK’s fourth largest supermarket chain. That bettered the £6.7bn already on the table from rival suitor Fortress.

After Morrisons, the most obvious target for a financial buyer is Sainsbury’s. The US buyout firm Apollo is taking an “exploratory” look at company, according to the Sunday Times. Apollo has been scouring the industry for targets after being outbid for Asda last year, it said.

One complication is that Apollo, which was originally in the running to buy Morrisons, has said it is considering teaming up with Fortress. Any involvement in buying Morrisons would make a move on Sainsbury’s less likely, analysts said.

Shares in Sainsbury’s have already surged 30% this year on the back of bid speculation. That started in April when the Czech billionaire Daniel Křetínský raised his stake in the company to nearly 10%.

However when asked last month if the Sainsbury’s board was in talks with potential suitors its chief executive Simon Roberts said: “If we had anything to update on we would be updating on it.”

Both Sainsbury’s and Apollo declined to comment.

The big property holdings and healthy cash generation of supermarkets are attracting buyers starved of returns elsewhere. On Friday, Morrisons closed up 4% at 291p, 6p above CD&R’s 285p a share offer, suggesting investors think the bid battle is not over. Sainsbury’s closed up nearly 2% on hopes it, too, could be a target.

The Fortress-led group said last week it was considering its options and urged shareholders to “take no action”. Both CD&R and Fortress are trying to paint themselves as trustworthy owners of the business with whom previous failures of private equity – where companies have faltered after being loaded up with debt – will not be repeated.

However with the CD&R bid already a 60% premium to the Morrisons share price before takeover interest first emerged, the stakes are getting higher. Analysts say the higher the price is bid up, the more leverage is likely to be involved in the final deal. This could increase the pressure to sell off assets, such as its petrol stations, to raise cash as well as the need to cut costs.

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