Sainsbury’s gets a rare lift

AS A long-suffering investor in Sainsbury’s, one should be celebrating a 14.5pc uplift in a share price which has done very little since 2014. The £1.4bn takeover of Argos- owner Home Retail Group in 2016 was a good move but has hardly been transforming.

Certainly the deal with Asda has the potential to shake up grocery retail in Britain and tells us that there is a lot more to chief executive Mike Coupe than the bloke who took over from the effervescent Justin King.

As City broking house London Capital observed, the deal will mean that the UK goes from Big Four to Big Three supermarkets. That will mean reduced competition, pricing advantage from great market share, cost synergies and potential cash from property sales.

Sainsbury’s has demonstrated it is good at re-developing and making profits from city centre sites in London and elsewhere.

In making the case for the deal there are several issues worthy of scrutiny.

Sainsbury’s thinks that the big suppliers like Unilever will happily move both Asda and Sainsbury’s onto the same price code for, say, Ben & Jerry’s ice cream. But there can be no guarantee that will happen. Unilever, like Sainsbury’s, has profit-margin goals to hit and will keep to them.

The company claims that no stores will close. If the competition authorities insist, for instance, on the sale of up to 75 stores then Sainsbury’s has little say.

In Kensington in west London, the local Safeway store became a Morrisons after the 2004 merger between the two. It was required to sell it on to another operator, Tesco, which subsequently closed it down. Jobs and competition were wasted.

Finally, to make the Asda deal work some £500m of savings have to be found. That almost certainly means jobs going in warehouses, distribution centres, trucks and IT if complex logistics systems can be brought together. Maybe no job cuts which the consumer can see, but plenty unseen. Sainsbury’s has a great culture and reputation as we saw during the horse meat affair when it was virtually unscathed.

Whether than can be preserved when it is 42pc owned by Walmart, not known for its social responsibilities, also remains to be see. Anyone for chlorinated chicken?

Trump call

THE real mega- deal to emerge over the weekend was the sale by Softbank proprietor Masayoshi Son of the Sprint mobile service to Deutsche Telecom controlled American rival T-Mobile for £43.7bn including debt.

Best known in Britain for buying ARM in the weeks before the referendum, Son has been looking to offload troubled Sprint for some time. Combining the second and third operators in the US mobile market would provide a more formidable rival to Verizon.

In the past a deal between the two firms looked tricky because of coolness in the Obama Administration and they are now counting on a softer approach to regulation by Trump to give it a fair wind.

That is not necessarily the case. Trump has opposed the AT&T purchase of Time Warner and made anti-trust threats against Amazon. Some suspect that it is more about politics and Trump’s dislike of media properties CNN (owned by Time Warner) and the Washington Post (controlled by Amazon chief Jeff Bezos) rather than scale and market power. But in Trump’s unpredictable presidency, who knows.

Son’s goal is simpler. He wants to dump older-tech mobile in favour of newer tech, such as disrupter services, and maintain investment in ARM and the internet of things. The deal would give Son 27pc in the enlarged enterprise and cut 31pc off Softbank’s huge debt of £78bn. That should come as relief to Softbank investors. But as with the aborted Three/O2 merger in Britain, this deal is not over until it’s over.

Star turn

THE job adverts for the next governor of the Bank of England will not be posted until July. But potential candidates are zooming into view.

Raghuram Rajan, former governor of the Reserve Bank of India, will be in London next month for a symposium on What’s Preventing Global Economic Growth? As a former IMF chief economist, professor at Chicago Booth School of Business and author of a seminal work on the financial crisis he is certain to attract a high level audience.

Opportunity for the Treasury scouts to take a look.