Sainsbury’s was the top riser on the FTSE 100 on Monday as investors bet that the supermarket chain could be the next target for a takeover after the US firm Fortress, which narrowly missed out in an auction battle for Morrisons over the weekend, said it was still keen on buying a UK company.
Shares in Sainsbury’s rose by almost 5% to 298p, while Tesco was also one of the best performers on the UK’s index of blue-chip stocks, up 2% at 253p, as traders speculated where Fortress and other private equity firms might focus their attention.
Joshua Pack, a financier at Fortress, reiterated expressions of interest made by the firm over the weekend. “The UK remains a very attractive investment environment from many perspectives and we will continue to explore opportunities to help strong management teams grow their businesses and create long-term value,” he said.
Softbank-owned Fortress was narrowly beaten by Clayton, Dubilier & Rice (CD&R) in the auction for Morrisons, bidding 286p a share compared with CD&R’s 287p a share offer, which valued the Bradford-based chain at £7.1bn.
“Fortress, which was unlucky in the Morrisons bid, is seen to be eager to make a large transaction, so one must wonder if Sainsbury’s is the next logical business to tick all the right boxes for the US dealmaker,” said Russ Mould, the investment director at AJ Bell.
Meanwhile, the chairman of Morrisons said he expected CD&R to stick to its word and keep hold of the retailer’s assets rather than sell them off, if shareholders approve the deal in a vote to be held on 19 October.
Andrew Higginson said: “They’ve given a list of undertakings which, I think, under current legislation, is as good as we can get. And they’re very strong undertakings: to keep the business as it is, to keep the head office in Bradford.”
He also played down concerns over the UK’s supply chain crisis, caused by the national shortage of HGV drivers across Britain. He said the supply crunch had been well publicised but was “slightly overblown”, adding that he expected no disruption to Christmas deliveries.
“[Christmas] tends to come every year, and everyone seems to be sort of ready for it,” Higginson told BBC Radio 4’s Today programme. “So, no, I think it’ll be a good Christmas for people, I think people will want to treat themselves as they usually do. There are logistical issues at the moment, and I think those are sort of well publicised and slightly overblown, but you know the supply chains in the UK are incredibly efficient and I’m sure we’ll be able to deliver a great Christmas for customers as we go through.”
The supermarket boss will step down if the takeover goes ahead, and it is expected that Sir Terry Leahy, an advisor to CD&R and a former Tesco boss, would be appointed as the new chair of Morrisons.
“I would imagine having him on their roster would be a very sensible move,” Higginson said. “I mean, obviously, I know Terry very well from having worked with him for a number of years, and he’ll be a very good chairman for the business.”
CD&R has been trying to address concerns raised by politicians and unions, who fear the wave of private equity takeovers will mean British companies being stripped of their property holdings, loading them up with debt and lowering working standards.
“I think private equity gets a bit of a bad rap,” Higginson said. “Obviously, there are good and bad [private equity firms], like in any population. But by and large, private equity is focused on growth and trying to grow businesses, and that’s the way they make their returns: by improving the businesses and flipping them on, you know, a few years on.”
He pointed to CD&R’s ownership of B&M, which he said proved the private equity owner was interested in “growing the business and creating value” rather than trying to extract wealth through “some sort of financial engineering”. CD&R netted an estimated profit of about £1bn after selling its remaining stake in the discount retailer in 2018.
A spokesperson for the Department for Business, Energy and Industrial Strategy said: “The government recognises that overseas investors play a major and positive role in stimulating economic growth in every part of the UK. In most cases, it is right that mergers are treated as a commercial matter for the parties involved, and we continue to monitor the situation.”