Sainsbury Gains on Speculation of Renewed Interest From Qatar Investment

J Sainsbury Plc, the U.K.’s third- largest supermarket owner, rose in London trading on newspaper speculation that the Qatar Investment Authority, its largest shareholder, may be renewing its interest in acquiring the retailer.

Qatar may soon increase its stake in Sainsbury to 29.9 percent prior to making a cash offer of 500 pence a share, the Daily Mail said in its market report column, without saying where it got the information. The Daily Telegraph said there is speculation of a bid at 550 pence a share.

Qatar Holding LLC has snapped up assets in the U.K. including London luxury retailer Harrods, which it bought in May for 1.5 billion pounds. The 2007 bid for Sainsbury failed after the retailer’s pension fund demanded more cash and its founding family opposed loading the company with debt. Rumors surrounding the largest stakeholder have continued to resurface since then, fueling share price fluctuations.

“I’d be slightly skeptical about this, it comes up every few months,” Sam Hart, an analyst at Charles Stanley, said by phone. “Certainly the business is in good shape and the property assets are attractive so you can see why they may be interested again. I’d say, never say never.”

Sainsbury raised its market share to 16.2 percent in the three months through June 13 from the year earlier as sales climbed ahead of the market. The company is opening as many as 100 convenience stores this year and expanding non-food products such as its TU clothing range to fuel growth in the slowing U.K. market.

The shares rose as much as 4.6 percent and were up 14.9 pence at 343.1 pence as of 12:16 p.m., giving Sainsbury a market value of 6.4 billion pounds ($9.7 billion). The gain was the second-biggest in the benchmark FTSE 100 Index.

‘Money to Invest’

The Qataris “have money to invest and it seems seriously logical for them,” George Godber, a fund manager at Matterley Asset Management who holds Sainsbury’s stock, said by phone. “The current management team has done an incredible job of turning it around and the freehold assets are undervalued.”

The Gulf country’s sovereign wealth fund is investing $2.8 billion in Agricultural Bank of China Ltd.’s initial public offering, people familiar with the matter said last month.

‘Low Valuations’

“The Sainsbury business model has developed further since the QIA walked away in November 2007” and the investment authority’s justifications for an offer “still hold today,” Justin Scarborough, an analyst at RBS, said in a note. “Speculation of a bid should refocus investors’ attentions back to the sector and its low valuations.”

The cost of insuring Sainsbury debt against default jumped on speculation a debt-funded buyout may hurt bondholders. Credit-default swaps tied to the retailer’s debt rose 20 basis points to 147, the highest in almost a month, according to CMA DataVision.

The contracts are used to speculate on a company’s ability to repay debt, and an increase indicates deterioration in the perception of credit quality. A basis point on a default swap protecting 10 million euros ($12.6 million) of debt from default for five years is equivalent to 1,000 euros a year.

To contact the reporter on this story: Paul Jarvis at pjarvis@bloomberg.net.

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