“The silence was indeed deafening”, one UK media commentator remarked on Sainsbury’s refusal yesterday (15 October) to comment on rumours that Qatar’s sovereign wealth fund was plotting to renew its efforts to fully acquire the company.
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Sources close to Sainsbury’s suggest it has heard nothing from the Qatar Investment Authority (QIA). If so, the UK’s third-largest retailer is under no obligation to comment under Financial Services Authority rules.
Sainsbury’s “no comment”, however, will have helped fuel the fire, and, the speculation drove the retailer’s share price up with some vigour, by as much as 20% at one point.
If nothing else comes from this, the rise has at least piqued the interest of the FSA, who will probably want to investigate the volatile movement of the shares.
In 2007, QIA’s investment fund Delta Two launched an GBP11bn (US$17.94bn) bid for the retail group. The bid failed as the Sainsbury’s family refused to have control of the company wrestled from them. However, the QIA was left with a 26% stake in the group.
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By GlobalDataA possible FSA probe aside, the rumours beg two obvious questions. Firstly, is the QIA, already in acquisitive mood, readying another shot at Sainsbury’s? And, two, will the Sainsbury family be more susceptible to its advances this time round?
The QIA has been on something of an investment roll recently. It bought a stake in Porsche over the summer and earlier this week it became the majority-owner of Songbird Estates, which owns close to 70% of Canary Wharf. The QIA also injected capital into Barclays last year.
Its decision to walk away from the 600p bid in 2007 now seems prudent, with Sainsbury’s share price eventually closing at around 342½p last night, itself up 10% on the previous day. If QIA is still interested, a tilt at the retailer could cost it significantly less than it might have done two years ago.
Some reports have suggested QIA has approached the business with a 420p offer this time round. The Sainsbury family owns around 15% of the business, enough in other words to act as a blocking stake. Indeed, it was the family’s opposition last time that scuppered the Qatari efforts.
There has been nothing in the retailer’s recent performances that have suggested that it has become susceptible to a takeover. In its most recent results, Sainsbury’s posted a 5.4% increase in like-for-like sales – excluding fuel and VAT sales tax – for the second quarter. The result compared with a 7.8% gain in the first-quarter. It’s hard to see, even with a recession taken into account, that this lower offer will be tempting.
“A 420p bid in our view would seem way too low,” Justin Scarborough, an analyst at Royal Bank of Scotland, said in a note. “We would of course never say never, but the family would not accept 600 pence back in November 2007, which led to the Qataris walking away.”
It could all be rumour and bluster then. If it is, then the reaction of the market shows quite how ready it is again to jump upon the merger and acquisition bandwagon after a stagnant 12 months.
