Supermarket sweep: investors go ‘wild in the aisles’

The battle between rival US private equity outfits for Britain’s No. 4 supermarket group has reached the “phase when ego, pride and the thrill of the chase can start to impinge on good judgement”, said Patrick Hosking in The Times. Last week’s £7bn bid from Clayton, Dubilier & Rice – recommended by Morrison’s board to shareholders – is pitched at 20.7 times last year’s profits. That’s a “fabulous sum for a grocer” and a 60% premium to the undisturbed share price. Investors think Fortress, the SoftBank-backed rival group, will now go even higher. But the frothier the price, the harder the winner will need to “drive the business to get their sums to add up”. That may not be good news for anyone.

If the “leapfrogging” continues, said Zoe Wood in The Guardian, the Takeover Panel could insist on an auction to bring matters to a head before the proposed shareholder vote in October. The excitement is proving “contagious”, said George Hay on Reuters Breakingviews. On Monday, shares in J. Sainsbury surged 15% to a seven-year high following a Sunday Times story reporting interest from Apollo, a US private equity group also once linked to Morrisons. Still, it might be “classic silly season” stuff: neither party has confirmed a thing.

Yet it’s highly plausible that Apollo, or a thwarted Morrisons suitor, could chase Sainsbury’s, said Lex in the FT. True, it’s not quite as “appetising” as Morrisons; that chain has a pension fund surplus, owns 87% of its properties and has the lowest gearing in the industry. But Sainsbury’s is also an “asset-rich, cash-generative” business with a nice property portfolio. “Investors are going wild in the aisles” at Morrisons. Don’t bet against it happening at Sainsbury’s, too.

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