Sainsbury’s is a takeover target and its chief must act

The slow march of the self-made Bestway billionaire on UK retail has rattled the supermarket giant – will the companies seal a deal?

There is a joke circulating in the Square Mile: Sir Anwar Pervez, the billionaire cash-and carry tycoon whose empire includes the Costcutter convenience chain, loves Sainsbury’s so much, he might buy it one day.

Admittedly, it’s not the most side-splitting gag but the buttoned-up world of the City is hardly the place for cutting-edge comedy.

One person unlikely to see the funny side is Sainsbury’s boss Simon Roberts. Having only last week spent roughly £200m gobbling up shares in Britain’s second largest supermarket, Sir Anwar’s sprawling Bestway outfit has revealed that it snapped up another £50m worth of stock the following day. The latest raid leaves the wholesaler with a 4.5pc stake in Sainsbury’s, making it the company’s third largest shareholder, and Roberts with an almighty headache that he definitely didn’t need.

Like most supermarket bosses, seeing off the mounting threat of Aldi and Lidl during a moment of intense pressure on householder budgets is enough of a challenge, without a fearsome rival suddenly breathing down your neck. The worst part about it is – Bestway’s intentions are as yet unclear. As is its duty under takeover rules, the group has been forced to clarify that it has no current plans to launch a highly ambitious bid.

That prevents the group, which also owns the Bargain Booze chain of off licences, from making an approach for six months. But as any investment banker worth his salt will tell you, that doesn’t rule out a move when the cooling-off period expires. And like it or not, that means Sainsbury’s is now firmly a takeover target, if not for Bestway, then for a rival – or worse, ruthless private equity executives looking to make a quick return off the back of a prestigious UK company.

Whether or not you believe Bestway’s assertions that it is not interested in bidding, rainmakers across the City will now be scurrying feverishly around trying to drum up a deal that could generate hundreds of millions of pounds in fees. Roberts then must act decisively.

Britain’s supermarket industry has been alive with deal activity in recent years and the changes of ownership at Morrisons and Asda should be more than enough to force him into action.

Two of Sainsbury’s biggest rivals are now in the hands of profit-driven private equity investors, weighed down by expensive multibillion-pound debt burdens and with all the negative ramifications that is likely to have for investment, jobs, and the cost base. There is hardly ever a good time to be put through the private equity wringer, and though a heavily debt-financed takeover would be harder to pull off now that the interest rate cycle has turned so sharply, the last thing that Sainsbury’s needs is to find itself in the hands of a rapacious buyout firm.

Reports suggest it only narrowly avoided having to fend off an unsolicited offer from Apollo last year. After losing out in the bidding for Morrisons, the Wall Street investment giant turned its guns on £6bn Sainsbury’s but was spooked by the market turmoil that followed Russia’s invasion of Ukraine. That should really focus minds in Holborn where the senior management from Sainsbury’s are based.

Roberts will be reluctant to go on the acquisition trail after the less-than-convincing dealmaking exploits of predecessor Mike Coupe. The jury is still out on the takeover of Argos seven years after completion, and attempts at a mega-merger with Asda were a total disaster after the competition watchdog pulled the plug.

Yet Sainsbury’s cannot afford to wait and see what happens next. Roberts needs to gain the upper hand and at least hold proper exploratory talks with Sir Anwar to see whether the two sides can hammer out some sort of meaningful tie-up before another suitor – such as “Czech Sphinx” Daniel Kretinsky, who has amassed a 10pc stake – comes knocking.

It needn’t be a full-blown merger – though it shouldn’t be ruled out – but a combination of some sort makes a lot of sense.

Tesco’s £3.7bn takeover of Booker five years ago – the country’s biggest wholesaler – provides inspiration in spades. Booker has thrived under Tesco’s ownership, with turnover jumping from £5.7bn to more than £8bn. Profits are thought to have doubled.

Sainsbury’s and Bestway would be able to combine their buying power to better compete with the muscle of Tesco in a world where suppliers are driving a harder bargain.

It might also convince investors that Sainsbury’s has an answer to the relentless assault of the discounters.

Bestway should certainly be taken seriously. With annual turnover of approximately £4.5bn and 28,000 staff worldwide, it is the seventh largest family-owned company in the UK, and has amassed a cash pile of £1.8bn. Whatever its intentions, you have to take your hat off to Sir Anwar. He came to London from Pakistan aged just 21 in the 1950s and after working as a bus driver in Bradford, started Bestway as a single corner shop in Earls Court in 1963 before branching out into wholesaling when his suppliers demanded better terms.

It sells food, drink, tobacco and household goods to 130,000 retailers, has diversified into cement-making and banking in his home country and is now a major shareholder in the one of the UK’S biggest and best-known companies.

It is the sort of patient, nurturing ownership that is generally beyond the get-rich-quick world of private equity.

‘Changes of ownership at Morrisons and Asda should force Roberts into action’