Sainsbury's shares surge 15% on private equity takeover interest

The outcome of the current takeover speculation surrounding Sainsbury's significantly depends on the result of the takeover battle for rival supermarket chain Morrisons.

Shares in UK supermarket giant Sainsbury’s rose by more than 15% after a report that Apollo Global Management could be taking a look at Britain’s second-largest grocer amid wider consolidation in the sector.

Apollo, which has $88bn (€75bn) of assets under management, is interested in the UK supermarket industry, having previously lost out on the chance to take control of Asda, the country’s third-biggest grocer, to the Issa brothers and TDR Capital.

Apollo is understood not to be holding talks with Sainsbury's and the buyout firm has not hired advisers to explore a potential deal. The focus remains on partnering with Fortress Investment Group on its bid for another UK supermarket giant, Morrisons.

Apollo already announced last month that it is in talks with a consortium led by Fortress. 

If it joins the group, that could rule out any potential involvement in a bid for Sainsbury.

Sainsbury's has been attracting speculation since its attempt to merge with Asda was blocked by UK antitrust regulators. Shares in Sainsbury's have risen by more than 40% since the start of the year. 

The grocer’s two largest shareholders are the Qatar Investment Authority and Daniel Kretinsky, a Czech billionaire, who between them own almost a quarter of the stock.

Speculation that Apollo is interested in Sainsbury's is “effectively rehashing a potential story that has been around since Apollo lost out to TDR and the Issa brothers for Asda,” said Clive Black, an analyst at Shore Capital, a house broker to Morrisons.

The outcome of Fortress’s pursuit of Morrisons could be key to Apollo’s decision-making, he said.

“If Apollo does not participate in Morrison’s future, then we cannot discount that the private equity group nor other mega-finance houses will consider looking at Sainsbury's,” Mr Black said. “Accordingly, expect real and made-up noise to continue.” 

Britain’s supermarkets are attracting intense buyout interest as the economics of the industry have dramatically improved since the onset of the pandemic, which elevated sales and accelerated changes in shopping habits. Supermarkets generate substantial cash and have large property portfolios. The rise in online shopping has made e-commerce more profitable.

-Bloomberg