Sainsbury’s shares hit seven-year high amid takeover reports

Supermarket chain could be latest UK company to receive bid after recent bidding war for Morrisons

Last modified on Mon 23 Aug 2021 06.12 EDT

Sainsbury’s shares rose by more than 11% in early trading on Monday, their highest level in over seven years, after reports over the weekend that the supermarket chain could be latest UK company to receive a buyout bid from a private equity firm.

Shares in the UK’s second-largest supermarket group briefly jumped to 332p, reaching levels not seen since June 2014, the biggest climber on London’s FTSE 100 index on Monday.

Sainsbury’s is seen as the next potential target for foreign private equity cash, after the recent bidding war for Morrisons drew investors’ attention to the larger UK supermarket chains.

Last week, the buyout firm the US private equity firm Clayton, Dubilier & Rice (CD&R) had its improved £7bn offer for Morrisons recommended by the board of the UK’s fourth-largest supermarket chain.

After the race for Morrisons, analysts consider Sainsbury’s to be the most obvious target for a buyer.

US buyout firm Apollo is taking an “exploratory” look at company, according to the Sunday Times. It reported that Apollo has been scouting for targets in the industry after losing out last year in the race for supermarket Asda, previously owned by the US retail giant Walmart.

Shares in Sainsbury’s have surged by about 45% since the start of the year, when they were trading at about 226p, as a result of reports of possible bids.

The speculation began 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.”

Sainsbury’s is “undeniably a good target for private equity with a considerable store estate, with the company having more than $10bn (£7.3bn) in property assets”, according to Neil Wilson, chief market analyst at financial trading platform Markets.com.

“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 cashflows,” said Wilson.

Both Sainsbury’s and Apollo declined to comment.

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