The deal, which would see the combined group leapfrog Tesco TSCO.L to become Britain's biggest food retailer, sent shares in Sainsbury's up 17 percent by 1200 GMT and on course for their biggest one-day gain since 1983, Thomson Reuters data showed.
Before the news broke over the weekend, data from industry tracker FIS’ Astec Analytics showed more than 160 million Sainsbury’s shares were out on loan, near the top of a 52-week range, as part of a “short” trade betting the price will fall.
The Sainsbury’s share price bounce could see the funds with the largest positions collectively more than 100 million pounds out of pocket.
Under a “short” trade, a fund borrows the shares from a long-term holder such as a pension fund and then sells them. The fund hopes to buy the shares back at a later date for a cheaper price before returning them to the original owner, pocketing the difference minus fees.
The scale of demand to borrow Sainsbury’s stock has remained broadly stable since the end of last year. Data to the end of Thursday showed that 28.2 percent of the stock made available to be borrowed was actually out on loan.
RETAIL OUT OF FAVOUR
While funds with small positions can fly under the radar, data from Britain’s Financial Conduct Authority showed 10 investment managers had a position of more than 0.5 percent of Sainsbury’s stock, the level at which it demands disclosure.
The biggest position, at 1.85 percent was for British firm Marshall Wace, followed by Pelham Capital at 1.7 percent and BlackRock Investment Management, at 1.69 percent.
Others to hold positions above 0.5 percent include computer-driven AQR Capital Management as well as BNP Paribas, Citadel Advisors, Citadel Europe, Discovery Capital Management, GLG Partners and Odey Asset Management, the FCA filings data showed.
Taken together, the 10 positions account for a 10.8 percent position in Sainsbury’s stock. While it is not known when and at what price all the shares were borrowed, Monday’s move could represent a paper loss of more than 110 million pounds.
The hedge funds' focus on Sainsbury's has been mirrored elsewhere in the retail sector in recent months, with Marks & Spencer MKS.L, Ocado OCDO.L and WM Morrison Supermarkets MRW.L all seeing strong demand to short.
Companies relying on the spending power of the British consumer have faced tough questions in recent months as the impact of Britain’s decision to leave the European Union has gradually begun to weigh on sentiment.
More broadly, retailers have faced additional concerns about the changing patterns of consumer behaviour, with more people shopping online. Spending power has also been constrained by rising inflation and subdued wage rises.
Reporting by Simon Jessop; Editing by Keith Weir
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