The FT newsroom is at its best today with teams of reporters working on two big stories. Top of the list is news that a consortium of private equity firms is considering a bid for J Sainsbury.
The consortium is led by CVC but also includes KKR and Blackstone. Their statement has not only ignited shares in Sainsbury – up more than 15 per cent this morning – but has also lifted shares in Wm Morrison and Tesco. We already have a mass of stuff online but we will obviously go to town on this in tomorrow’s paper. Sainsbury shares, on about 32 times prospective earnings before today’s rise, are not cheap. But private equity is clearly drawn to Sainsbury by its property portfolio, which makes gearing up easier, and its weak operating margins which, at 2.2 per cent, are much lower than Tesco and even than Asda. Private equity firms are desperate to show they can pull off a really big deal after several disappointments, and they know that conditions may not always be as favourable at they now, awash as private equity is with both equity and cheap debt.
Buying Sainsbury is clearly a very long shot, but for an excellent run-through of how a bid might work, read Numis’s very timely Monday note which Alphaville is giving great prominence to. Take a bow Steve Davies of Numis. No response yet from Sainsbury.
The other big story (although not in terms of market cap of course) is Torex Retail. We were all over this this morning with details of which houses were searched by the SFO, who blew the whistle and Torex Retail’s recent dealings with its banks. We remain fascinated and will see what more we can tell you in tomorrow’s paper.
British Airways said it had lost revenues of around £80m due to the prolonged threat of industrial action by thousands of its cabin crew in recent weeks. The airline also said it had also suffered a sharp fall in profits in its third quarter from October to December with operating profits declining by 26.7 per cent to £129m and pre-tax profits dropping 31.9 per cent to £113m. This was because of Christmas cancellations because of fog, baggage problems, fuel costs and tightening security.
An interesting scoop from Kate Burgess: Brian Ashford-Russell, the technology investment star, stands to make close to £22m when Polar Capital, the group he co-founded six years ago, floats on the Alternative Investment Market on Tuesday.
Rumour of the day:
Neil Hume is picking up talk that Imperial Tobacco could be bid for. Altria is being mentioned, of course.