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Qatar shops for Sainsbury

Robert Peston | 08:00 UK time, Wednesday, 18 July 2007

Most of us simply go shopping at Sainsbury.

However the prime minister of Qatar – or rather his investment vehicle Delta Two – wants to buy the whole company.

j_sainsbury.jpgJ Sainsbury will today receive a written takeover proposal from Delta Two.

It will value J Sainsbury at 610p per share, or £12bn for the whole business – including Sainsbury’s existing debt (so the market cap of Sainsbury at the proposed takeout price would be £10.6bn).

Here’s the funny thing: although the Qataris have very deep pockets, the structure of this deal is still very much like the private-equity approach from CVC and its partners that flopped earlier this year.

Or to put it another way, Delta Two is proposing to borrow some £8bn to fund this deal.

What that means is that the trustees of Sainsbury’s pension fund will again feel somewhat anxious about the proposed takeover – and are bound to insist that Delta Two put a good wodge of cash into the pension scheme.

Another obstacle is that the two Lord Sainsburys – David and John – don’t like the look of what’s on offer. They’ve just been out to Sardinia to meet Paul Taylor of Delta Two and have returned reluctant to sell out to him.

However, they and close members of their family control no more than 14.5 per cent of the company (and including more distant cousins, all Sainsbury family members control 18 per cent). So they probably can’t block the deal - though they can be pretty obstructive to Delta Two, given that it will probably want to obtain control of at least 75 per cent of Sainsbury (for technical reasons it probably needs that much, given how much debt Delta would inject into the company).

So this feels to me like the final instalment in the soap opera of Sainsbury’s takeover talks.

It would be very hard for Sainsbury’s board to tell Delta Two to hop off, because the price it’s offering represents a significant premium to the £8.6bn value of its properties and also puts its shares on a ratio of price-to-earnings well above the industry average.

Sainsbury may soon find itself a de facto branch of the Qatari Government.

Comments   Post your comment

  • 1.
  • At 08:34 AM on 18 Jul 2007,
  • jenny wrote:

Why are we allowing all our companies to be bought by these private equity people all they do is asset strip. In the long turn it is not sensible to allow all british companies to be controlled from abroad.

  • 2.
  • At 09:34 AM on 18 Jul 2007,
  • iamagreatskier wrote:

My main concern is the impact on the public as customers of these stores. My view remains the same as that when Boots went. It doesn't matter who owns what as long as the stores owners do not screw the shopper. They need to remember that there are alternatives out there. I am fed up - well my wife is fed up - with takeovers which mess up the shops and is very happy to shop around if she feels aggrieved.

  • 3.
  • At 10:08 AM on 18 Jul 2007,
  • chris wrote:

I really don't agree with any sort of protectionist stance with respect to foreign ownership of corporates. Delta2 is bidding because it believes it can increase the value of its slice of equity better than the current management. As a private investor, of course I'm disappointed that I won't have a chance to participate, and that there will be 1 fewer quality companies on the LSE in which to invest my cash, but that's a rather different issue.
As Peston points out, the pension trustees will quite rightly want some form of guarantee that their obligations will not be neglected. With a less conservative capital structure which gears the equity returns with a larger slug of debt, the trustees will, much like in the Alliance Boots takeover, want an upfront injection of cash to compensate for the increased risk of default. Therefore, perhaps the only relavant discussion at this time, is a more socially oriented one concerning whether corporates exist solely for the benefit of their shareholders, or whether their responsibilities to the communities they serve should sometimes trump relatively short-term financial aims.

  • 4.
  • At 10:48 AM on 18 Jul 2007,
  • Paul wrote:

Jenny wrote, "Why are we allowing all our companies to be bought... In the long term it is not sensible to allow all british companies to be controlled from abroad."

Who exactly is the "we" who are allowing Sainsbury to be purchased by Delta Two? The company doesn't belong to me, except perhaps in the very indirect sense that some of my pension fund might be invested in its shares, or to anyone else apart from the shareholders. Why should people who aren't shareholders in the company (or competition regulators etc) presume to have any say in who can buy it? If the shareholders think that the offer is a good one they will accept it, and if they think their money is better off still invested in the company they will reject it, as the article notes that some shareholders are considering doing.

The comment also assumes that Sainsbury is still British-owned, but as it is a listed company, anyone from any country is free to buy and sell its shares, and I'd imagine that the shareholders' register of the company includes a number of overseas investors already. That's just a consequence of listing a company. Why on earth should it be any different for any particular UK business?

I can see that there could be reasons to object to the purchase of strategically important companies in the defence and other industries, but I can't see how these could apply to a supermarket. As a customer of Sainsbury, what I really care about is the quality of its products and how they are priced, not who owns it. If I'm not happy with these I can take my business elsewhere - surely whoever owns the company is incentivised to run the business well in order to retain customers and keep it profitable. If they don't, we can take our custom elsewhere.

  • 5.
  • At 11:50 AM on 18 Jul 2007,
  • Alan F Barry wrote:

I am sure the Qataris' are not interested in running a grocery business for the benefit of customers. They merely want to turn Sainsbury's real estate into cash and later sell the rump of business on. If Sainsbury's management, who have been doing a good job lately, have decided it is in the best long term interests of the business to hold onto its property portfolio, it shows that the Qatari's must have a different agenda.

  • 6.
  • At 12:02 PM on 18 Jul 2007,
  • Dick wrote:

Nice one Paul... A solid demonstration of the classic British attitude. No pride, no patriotism and obviously you couldn't care less about the exporting of profits nor the inevitable loss to the Treasury in corporation tax.

  • 7.
  • At 12:08 PM on 18 Jul 2007,
  • SD wrote:

eh Dick - Paul is talking about an idealogy we in the West created. Removal of protectionism so that we can buy and place assets in other countries. Its in our textbooks...

  • 8.
  • At 12:28 PM on 18 Jul 2007,
  • Stephen wrote:

To those who do not want to see this deal go ahead, then do the one thing you can do - buy some shares and vote NO! I own a small number of shares and this is what I will be doing.

  • 9.
  • At 01:04 PM on 18 Jul 2007,
  • Paul wrote:

Dick,

If you owned a small business (and maybe you do, I don't know), and wanted to sell it to a larger company which had made you a good offer for it, I've no doubt that you would strongly object if I tried to interfere in the sale because I didn't like the people you were selling your company to. Quite right too, it's none of my business who you sell your own assets to. How is this different from the Sainsbury scenario?

You mention a lack of pride and patriotism on my part, presumably because I don't object to overseas ownership of a company you perceive as British. But in what sense is this really a British company? True, the original owners were a British family, but since the shares have been listed on the LSE anyone from any country has been free to buy them, if people are selling. Most of the customers are probably British, but I can't see why that would change if the business is sold. The same is probably true of the senior management.

You also mention loss of tax revenue after a sale, but if the companies in the Sainsbury group stay tax-resident in the UK, they'll still be paying UK tax in the same way as they do now. Admittedly the capital structure of the group may well change with an injection of debt, which will affect the amount of tax which is paid, but that could be done at the moment without any change in ownership, or by a UK buyer of the company.

  • 10.
  • At 03:11 PM on 18 Jul 2007,
  • Dick wrote:

SD - and the consequence of that ideology and particularly the UK's peculiar interpretation of it is that we are now 20th in the competitiveness league tables, behind N Zealand and slipping further every year.

Although it may appear ridiculous to get annoyed over the possible flogging off of a supermarket it's symptomatic of one of the great failings of the UK economy. We're just not investing in anything much that's new.

  • 11.
  • At 03:14 PM on 18 Jul 2007,
  • Neil wrote:

I hope the deal does go through - whenever I go into a Sainburys store after work, about 6pm - the place is empty of food, nothing to buy! (this is common across the country I have found) Given the workers are the segment with the most deposable income to spend, Sainburys seems to be losing profit. I hope the new owners will fill the shelves and enable people to buy food after 6pm and the extra profit will quickly pay back the debt. Its a badly managed company when 50% of the shelves don't have fresh vegetables, milk, meat, bread etc when the most affluent group of people go shopping. Get rid of the poor management!

  • 12.
  • At 03:25 PM on 18 Jul 2007,
  • John Gill wrote:

Seems like a good idea to sell loads of companies abroad, then nationalise them in a few years time followed by privatisation.

  • 13.
  • At 04:25 PM on 18 Jul 2007,
  • Nick Hoskinson wrote:

Just another bunch of greedy speculators primed and ready to start asset stripping. How long will Sainsbuys last given that once all the sites are sold, and the company in debt up to their eye brows. I must say it's the pensions of the workers I feel will suffer very badly, and probably disappear out of the Country with the rest of the cash. Then Sainsburys gopes into receivership and is finished. The greedy little people from foreign lands will be off to bank their ill gotten gains.

  • 14.
  • At 01:10 AM on 19 Jul 2007,
  • John wrote:

I can only say that I am jealous of the Qatari’s. Just the shear a mount of cash that they can invest is enough to be envious.

A few of the comments thus far have said that Sainsbury’s will be asset striped, I agree, weather by a foreign or domestic business is yet to be decided. It would still lead to more housing and less jobs.

But the reason I am jealous of the Qatari’s is that a government agency is allow to invest heavily overseas. In the UK everyone would up in arms if we tried to the same. The cries would go up that it’s a waste of public money and in which ever country the buy out was there would be accused of being imperialism.

  • 15.
  • At 10:59 AM on 19 Jul 2007,
  • Anonymous wrote:

I've got a great idea for keeping it British - let Tesco's buy it.

Oh but hang on - they adopted the many of the strategies that private equity use to improve the productivity of a company and are being remarkably successful. They are even competative overseas too! They're already to big for their own boots (no private equity pun intended) so lets criticise them as well.

Is it any wonder that our companies are being bought from overseas and we are becoming less competitive when our "patriotic" culture is to laud mediocraty and pillory success

  • 16.
  • At 12:46 PM on 19 Jul 2007,
  • Sue wrote:

I hope it doesn't come off. I am really concerned, my husband works as a store manager for Sainsbury's and i really don't want to face the prospect of the company being run into the ground and my husband loosing his job and final salary pension, which he pays a hefty 11% into each month!

  • 17.
  • At 11:53 AM on 20 Jul 2007,
  • Anonymous2 wrote:

Sue - I also work for Sainsbury's and am concerned. I'm just going to watch how the sitaution develops and change my pension plans if things start to go bad.

Anyone - are Delta Two a private equity firm? Is this the same sort of bid as before?

  • 18.
  • At 12:45 PM on 20 Jul 2007,
  • Mike Ball wrote:

I worked for JS when they were the UK no.1 retailer for a number of years.I retired and took my pension in 1999.

Unfortunately Sainsburys closed their eyes to creative, risk taking talent and preferred to employ more of the same grey " let's stick with the business we know" approach.( I should know, I worked with a lot of these guys - very few could see that the Sainsburys formula could not last forever. And those that did dare not say so - my ... how we used to scoff at Tesco !!!) Result? The adventurous and risk taking Tesco zoomed past and others caught up.Sainsburys have done a great job fighting back in the past couple of years but for how long? Surely they will need to do something different (creative?) at some stage to even think about getting to no.2 or even challenge Tesco.

No I don't want to see them sold. It was and could still be a great company again.Not only were they commercially successful they were also one of the best companies to work for and really looked after their employees.But where will the new energy come from??

Truth be told,I am worried for selfish reasons.How safe is my pension in a take over? I really rely on that as do many of us pensioners and current employees. It was one of the best pension schemes around and there are thousands of us out there. Who will look after our interests?

I have a few shares left from my the old JS Profit Share Scheme which I would like to keep invested. Do I sell or keep them with the new owners (if allowed to do so).

Confused and concerned!

  • 19.
  • At 05:49 PM on 20 Jul 2007,
  • James Styles wrote:

Oh well , it will be a few more miles down the road to do my shopping but if this deal goes ahead at least Waitrose knows how to treat their employees. I know who will be first up against the wll come the revolution.
James

  • 20.
  • At 01:48 PM on 31 Jul 2007,
  • JP Collet wrote:

I too work for Sainsburys at a brand new store that opened in October 2006, I have worked in retail in all my jobs either as a store manager or as a department manager and Sainsburys, so far, have proved to me to be one of the best in the way they treat their staff. There are many confused people walking around Sainsburys at the moment and not knowing what to say to the staff about " the future of their jobs, or their pensions " is having an effect on the way they are approching their jobs which is in turn having an effect on the " customer " What we need is a clear answer not the hiding behind the red tape that we get at the moment, I know that these things take time and I know that it is not going to be decided over night but it always seems o be the people on the front line who work in the stores to get the stock on the shelfs to get the stores open every day 7 days a week, are the last people who findout about what is actually happening! Neil wrote above that the most affluent people do their shopping after 6pm! That has to be the biggest load of rubbish I have ever heard in my life! In the store where I work we are in what could be describd as an affluent area and we are very busy after 6pm not by business men or women driving jaguars into the car park but by single mums and dads who find that after also working full time jobs fetching the kids from day care that is the only chance they to get to do their shopping! And to say that the shelves are empty after 6pm and that this has been noted throughout the country, I find that quite offensive to say the least, we work very hard to make sure that products are available throughout the day and we do a very very good job of it too! I am guessign the Neil does not work in a supermarket and would like to see people who comment on jobs that they do not understand come and do it for a month and then you will see just exactly how us frontline staff do a damn good job to make sure you do in fact get what you need when yu need it! Say NO to selling Sainsbury's

  • 21.
  • At 04:56 AM on 06 Nov 2007,
  • Another Paul wrote:

Well, it's over now but I remain fascinated by Dick's contention that we make ourselves less competitive by not adopting protectionist policies. I guess it means that you become competitive by refusing to let other teams play on your pitch, that way you score lots of goals, they can't score any and that clearly makes you the best team around.

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