Sainsbury’s takeover rumours

PRESSURE IS mounting on Sainsbury‘s, as rumours of a potential takeover lead by former Asda boss Allan Leighton multiply.

Reports suggest that private equity firms could put a pricetag of about £7bn on the ailing supermarket giant, but one expert close to the process said there were no bids poised yet.

The size of the deal means more than half a dozen firms would have to be involved, he said.

He suggested Sainsbury‘s had about six months to turn the tide and prove that chief executive Justin King is getting the business under control before buy-out pressure begins to mount.

Mr King put a recovery plan forward in October to stop the rot and win back market share from rivals Tesco and Asda.

He will recruit more staff to keep shelves full and aims to win £2.5bn in extra sales by 2007/08.

Shareholder and family member Jessica Sainsbury has described the rumours as “silly”, adding that the family, which still owns 34% of the company, fully backed Mr King.

If the supermarket were taken over by private equity, suppliers would face a dilemma.

While a revitalised Sainsbury‘s would loosen the stranglehold of Tesco and Asda, it could also put suppliers under more price pressure.

This is because a common way for private equity firms to wring money out of a retailer is to stretch payment terms, taking longer to pay their bills.

The last private equity takeover of a supermarket chain was with Gateway in 1989, which went bust shortly afterwards.

Sainsbury‘s shares have edged up 9% over the last week (w/e Oct 29) on the back of the reports, closing at 267.25p on Nov 1.