£5bn takeover bid for Sainsbury's

Ailing supermarket chain Sainsbury’s is the target of a £5bn (€7.2bn) takeover bid being prepared by an ex-treasurer of the Conservative party, it was reported today.

Corporate financier George Magan is thought to have approached banks and private equity groups to secure finance for the bid.

According to the Sunday Telegraph, Mr Magan has also courted a chairman of a FTSE 100 Index with a view to taking on a similar role at Sainsbury’s after it is taken private.

The report follows another poor trading update from Sainsbury’s with like-for-like sales down 1.1% in the 16 weeks to October 9, putting it further behind Tesco and Asda in the league of UK food retailers.

Chief executive Justin King unveiled his long-awaited recovery plan on Tuesday with a pledge to put an extra 3,000 staff on the shop floor.

But the statement also included an acknowledgement that £3bn (€4.3bn) of IT and supply chain changes have largely failed, while investors were told to expect a 50% cut in the annual dividend.

Today’s report that Mr Magan is at the preliminary stages of drawing up a bid comes at a time of feverish speculation that Sainsbury’s will face a takeover.

Private equity group Permira was last month rumoured to have turned its sights on the supermarket chain after failing in its bid to buy stationers WH Smith earlier this year.

Other names mentioned as potential suitors have included US retailing giant Target and retail tycoon Philip Green.

However, Mr Green has denied making a takeover approach in the wake of his failed bid for Marks & Spencer, while Target said it had not found any suitable acquisition opportunities in Europe.

Mr Magan, who served as treasurer of the Tory party in 2003, has built a reputation as a dealmaker since merchant bank Hawkpoint was sold to NatWest in 1996 for £80m (€115.3m). He later bought the business back for £20m (€28.8m).

He is currently chairman of London-based private equity group Lion Capital Advisers and holds a similar role at Mallett, the antique and furniture retailer.

Analysts have generally played down any takeover talk as the supermarket sector is heavily regulated and potential savings minimal.

But the attraction of Sainsbury’s to private equity funds is its freehold properties, which analysts estimate to be worth £8 billion and could be sold off to finance a bid.

Any successful offer would also need the blessing of the founding Sainsbury’s family, who currently own 35% of the company between them.