(Adds bond investor quote, background, updates share price)
By Yadarisa Shabong and Abhinav Ramnarayan
Aug 23 (Reuters) - Sainsbury's shares surged 14% on
Monday after a report that private equity firms could launch
bids worth more than 7 billion pounds ($9.6 billion) for
Britain's second biggest supermarket chain.
Buyout groups including New York-based Apollo Global
Management were circling Sainsbury's, the Sunday Times
reported https://www.thetimes.co.uk/article/bidders-train-guns-on-sainsburys-sh8228nst.
Sainsbury's, whose market value was about 6.9 billion pounds
at Friday's close, declined to comment.
Its shares were up 13.8% at 335 pence by 1035 GMT on the
London Stock Exchange after hitting 338.1 earlier in the
session, their highest since Feb. 26, 2014.
The reported interest in Sainsbury's is the latest example
of corporate America's voracious appetite for British companies
across industries including retail, defence and healthcare.
Morrisons, Britain's fourth largest supermarket
chain, is currently the target of a takeover battle involving at
least two U.S. groups.
The Sunday Times said Apollo's interest in Sainsbury's was
exploratory and that the U.S firm remained in talks to join a
consortium led by Fortress Investment Group in bidding for
Morrisons.
"Sainsbury's is undeniably a good target for private equity
with a considerable store estate, with the company having more
than $10bn in property assets," Markets.com analyst Neil Wilson
said via email. "The supermarkets are generating the kind of
yield that is hard to get elsewhere."
Sainsbury's traces its roots back to 1869 when John James
Sainsbury and his wife Mary Ann opened a shop in London's Drury
Lane. The company now has a 15% share of the UK grocery market,
a distant second behind leader Tesco on 27%.
Qatar's sovereign wealth fund is the largest shareholder in
Sainsbury's with almost 15% of the voting rights while Czech
billionaire Daniel Kretinsky has a roughly 10% stake.
A bond investor who declined to be named told Reuters they
had steered clear of buying Sainsbury's bonds last month because
they believed it was likely to be a takeover target.
Private equity buyouts typically pay for acquisitions with
debt that is then put on the target company's balance sheet -
known as a leveraged buyout - which can hit the target's credit
ratings and bond prices.
The bond investor said there had long been rumours of a
Sainsbury's buyout but a deal could have more chance this year
because the company is in a relatively defensive sector, offers
reliable cash flow and owns many of its assets.
Shore Capital analysts said that if Apollo did not end up
participating in any Morrisons deal, it and other bidders could
go after Sainsbury's.
Apollo lost out last year on buying Asda, the No. 3 British
supermarket chain, to brothers Zuber and Mohsin Issa and TDR
Capital. That deal https://www.reuters.com/world/uk/apollo-global-management-considering-offer-britains-morrisons-2021-07-05
valued Asda at 6.8 billion pounds.
($1 = 0.7327 pounds)
(Reporting by Yadarisa Shabong and Aditi Sebastian in Bengaluru
and Abhinav Ramnarayan in London; Additional reporting by Joice
Alves; Editing by Edmund Blair and David Clarke)
