News

J Sainsbury plc, the UK’s third-largest food retailer, noted on 11 April the decision by a consortium of PE firms not to proceed with an offer to purchase Sainsbury's share capital.



The consortium, UK-based CVC, and US-based Blackstone and Texas Pacific Group, had been ordered by the UK’s takeover regulator to make a formal offer by 13 April.



Sainsbury’s said the consortium had made several proposals, all of which were subject to pre-conditions. Sainsbury’s “board explored with the consortium whether the key pre-conditions attached to the proposals were capable of being satisfied or could be revised, but the consortium concluded that this was not possible. As a result, the consortium decided to cease discussions.”



CVC had reportedly said it needed the backing of the Sainsbury family, which own 18% of the shares, and 75% acceptance from the shareholders in general.



Over the last decade, Sainsbury’s had fallen back against competitors. But it has launched a successul recovery, and its statement stressed that it was “delivering an improving performance with a strong management team”.



The CVC-bid for Sainsbury’s is the largest leveraged buy-out ever attempted in the UK. In a leveraged buy-out, an investor borrows money to purchase a company, using the assets of the targeted firm as collateral.



The UK affiliates of UNI – USDAW and the T&G – welcomed the failure of the bid.



The takeover bid was also questioned by the Sainsbury family, who referred to the bid as another private equity rip off, and by pension trustees, whose acceptance was required for the bid to go through.



According to media reports, the withdrawal of the PE consortium’s takeover bid was not a surprise. The coalition of PE firms had begun to unravel after Lord (David) Sainsbury, the largest family shareholder, took the unusual step of stating publicly his opposition to the offer, as proposed.



First, Kohlberg Kravis Roberts (KKR), which had originally been in the consortium, quit. And then there were reports that Blackstone and Texas Pacific were dropping out too.



KKR is in the advanced stages of a bid to buy the UK’s largest pharmacy chain, Alliance Boots.



“CVC’s failure is the biggest public reverse suffered by the private equity industry in Britain and will be all the more painful because of the enormous public attention the proposed deal generated,” observed the UK’s Financial Times newspaper.



CVC’s current portfolio of companies includes Post Danmark (post offices) and the Belgian Post (post offices). And its previous portfolio companies include William Hill (betting services), Debenham’s (department stores), the Automotive Association (roadside assistance), Halfords (bicycle retailing) and Kwik Fit (automotive service).



Pressure on Sainsbury’s could continue, especially moves to draw more shareholder value from its huge property holdings. Proposals are being made by Robert Tchenguiz, a property tycoon, who recently increased his shareholding in the company.





Sources: Sainsbury’s press release, 11 April ’07; T&G press release, 11 April ’07; The Guardian, 12 April ’07; FT.com (Financial Times), 12 April ’07; BBC NEWS, 5 & 11 April ’07; CVC web site.