Sainsbury’s latest bid chatter looks overblown

Trolleys stacked together inside a Sainsbury’s supermarket in Richmond, west London
Trolleys stacked together inside a Sainsbury’s supermarket in Richmond, west London, Britain, June 27, 2022. Picture taken June 27, 2022. REUTERS/Henry Nicholls

LONDON, Jan 27 (Reuters Breakingviews) - Sainsbury’s (SBRY.L) is in the crosshairs of discount shoppers. Bestway, the privately held owner of the Costcutter convenience chain, revealed on Friday it had acquired a 3.45% stake in the UK’s second largest grocer. Although the news drove Sainsbury’s shares up 5%, a bid looks unlikely.

Bestway said it had no intention of launching an offer for the group, meaning it can’t bid for six months under UK takeover rules. Its 530 million pounds of EBITDA in 2022 was less than a quarter of Sainsbury’s, implying any deal would be a stretch. It would have to pass muster with the UK’s competition authorities which previously blocked Sainsbury’s planned merger with Asda in 2019. And Bestway would have to win over the Qataris and Czech billionaire Daniel Kretinsky who together own nearly a quarter of Sainsbury’s.

All that said, Kretinsky may yet have a longer-term strategic plan for Sainsbury’s – if so, that could include a consortium buyout. Alternatively, Bestway could just have a very simple aim in mind. Before Friday’s share bump, Sainsbury’s traded at around 5.5 times its forward EBITDA compared to larger rival Tesco (TSCO.L) which trades on 6.5 times. If Bestway reckons Sainsbury’s can win more market share and a recession may be milder than expected, its investment may merely be a punt on that. (By Aimee Donnellan)

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(The author is a Reuters Breakingviews columnist. The opinions expressed are their own.)

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