Sainsbury shares rise as buyout consortium takes pole position

UK retailer Marks & Spencer has ruled out an imminent bid for supermarket chain Sainsbury, removing a major obstacle to a potential offer from the CVC-led buyout consortium eyeing the company.

Shares in Sainsbury enjoyed a strong opening today as investors anticipated an offer from the private equity consortium tracking the UK retailer, after rival chain Marks & Spencer apparently ruled out a bid – for now.

Sainsbury shares were trading at 523.00 pence, up 2.3 percent, at 10:44 GMT, after M&S said it was not currently planning to bid for the company. The move could clear the way for the private equity consortium to submit its own offer in the coming days, which is likely to value Sainsbury at more than £9 billion (€13 billion; $18 billion).

In a statement to the stock exchange last night, M&S admitted that it had been “considering its position in relation to a possible combination with Sainsbury.”

However, M&S has only ruled itself out of the running in the short term. In the statement, the retailer reserved the right to change its mind if the buyout consortium – or any other third party – does make an offer for Sainsbury. Equally, it could also reconsider if it was to receive a recommendation from the Sainsbury board, or if there was any other “material change in circumstances.” 

Earlier yesterday, M&S chief executive Stuart Rose had appeared to indicate that his company was planning to bid for Sainsbury. In an off-the-cuff remark to Bloomberg reporters at a retail conference, he said: “Your shareholders would think you were an idiot if you didn’t consider it. Watch this space.” Rose added: “It’s an interesting idea because assets like this don’t come on the market very often.”

The apparent retreat of M&S seemed to be good news for the private equity consortium mulling a bid for Sainsbury, which currently comprises CVC Capital Partners, The Blackstone Group, Kohlberg Kravis Roberts and Texas Pacific Group. The share price of Sainsbury had risen as investors hoped for a bidding war, increasing the price the consortium would have to pay to take the retailer private. The withdrawal of M&S appears to leave the way clear for the buyout firms to submit their bid.