LONDON BRIEFING:AS CADBURY awaits the next move from its US predator Kraft, another British household-name company finds itself at the centre of a storm of bid speculation.
Rumours of a takeover move for Sainsbury’s, Britain’s third-largest supermarket chain, first did the rounds late last week, pushing its shares ahead by 20 per cent at one stage. The rumours then were pretty vague but acquired some substance yesterday with news that the Qatari sovereign wealth fund, which backed a £10 billion (€10.95 billion) approach for Sainsbury’s two years ago, has just added more than £600 million to its war-chest.
The Doha-based Qatar Investment Authority, controlled by the Gulf state’s royal family, netted the profit by cashing in part of its stake in Barclays. It had acquired the stake a year ago, when, along with a consortium of other wealthy Middle East investors, it helped bail out the bank, thus enabling Barclays to survive the post-Lehman Brothers crisis without having to resort to government aid.
Although the Qatari investors insisted yesterday that they remain long-term investors in Barclays, the sale sent shares in the bank tumbling.
Sainsbury’s, however, roared ahead another 5 per cent, on top of last week’s gains, as the market convinced itself that the Barclays cash is earmarked for a move on the food retailing firm.
It’s not just the share price movement that is fuelling bid speculation – last week, more than 70 million shares in the group changed hands in one session, almost 10 times the normal daily turnover for the stock, indicating that some investors at least are putting their money where their mouths are.
The Qataris are already the largest shareholders in Sainsbury’s, sitting on a key 26 per cent stake, the legacy of their abortive takeover attempt two years ago. When they first approached Sainsbury’s in the summer of 2007, there was little hint of the turmoil that was soon to engulf world markets. The credit crunch, together with demands from the Sainsbury’s employee pension fund for a cash injection of £1 billion, forced them to abandon the bid, although they retained their stake.
So far, the Qataris have given no indication that they have any plans for a return bid for the food retailer. If they do decide to move again, they will have some advantages, as the fall in the Sainsbury’s share price since their first attempt means they would get away with a lower offer – about 500p a share would probably do the trick, say analysts. But they still face the same hurdles they faced two years ago – demands for a substantial cash injection into the pension fund and the need to win agreement from the Sainsbury family, which still controls a 15 per cent stake.
Despite the past two years of turmoil, Sainsbury’s continues to sit on a large and lucrative property portfolio, worth upwards of £7 billion at its peak. Its well-regarded management team, headed by Justin King, also remains in place, although King is regularly touted as a successor to Sir Stuart Rose at Marks Spencer.
If the Qataris are planning a return bid, it’s puzzling that they decided to stay on the sidelines just a few months ago when the supermarkets group launched a £400 million cash call to fund expansion. They did not take up their entitlement to new shares, thus allowing their stake to be diluted.
It may be that Sainsbury’s largest shareholder has other plans to pursue, and would be prepared to sell its springboard stake to another bidder.
Either way, Sainsbury’s will remain at the centre of bid speculation until the Qataris either make a move, or give some clues about their intentions.
As they have never commented publicly on the stake since they first snapped it up two years ago, we might be in for a long wait.
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AS FOR Cadbury, we’ll know the fate of the confectionery group by November 9th at the latest. That’s the “put up or shut up” deadline given by the Takeover Panel to its would-be bidder Kraft, which is said to be struggling to raise the finance for its ambitious and unwanted offer.
This week Cadbury will produce a trading update for investors, although it is more likely to read like a takeover defence document. The group will be keen to stress its case for staying independent, and analysts expect chief executive Todd Stitzer to present a robust case. Normally ultra-conservative in his guidance on earnings, he may be more forthcoming on future prospects in an effort to persuade shareholders to remain loyal.
Fiona Walsh writes for the Guardiannewspaper in London
