Bestway’s shock investment in Sainsbury’s last week sent City tongues wagging and the supermarket’s shares to 11-month highs as the market attempted to decipher the implications.

On 27 January, Bestway announced it had accumulated a 3.45% stake in Sainsbury’s, costing around £193m at its previous closing price. Openly inviting interested investors to get in touch Sainsbury’s shareholders to get in touch so it could further grow its investment, that stake had built further to 4.45% by 1 February.

Sainsbury’s share price was buoyed by the news – rising 5.5% on the day, a further 4.5% the following Monday, and overall had risen by 12.2% by Thursday lunchtime to 268.7p, its highest level since February 2022. The shares rallied on the overriding feeling that Bestway’s move is more significant than the passive investment its own announcement seemed to suggest. But the market is little clearer on what that significance entails.

A precursor to a full takeover bid was raised as a possibility, but CMC Markets’ Michael Hewson was unconvinced: “While concerns about a takeover might have some merit, one only has to look at what’s happened with Morrisons and Asda to realise how any bid, if it were to happen, might end up becoming a very expensive proposition, in what is an incredibly competitive marketplace.”

At the very least, the stake is a sign that Bestway “wants a seat at the table”, according to AJ Bell’s Russ Mould. “Having a stake above 3% arguably gives Bestway the power by which to demand proper conversations with the business and push for a seat on the board of directors… It’s very rare for these types of transactions to simply be about making money from owning the shares. [The investment] suggests it is serious about wanting to collaborate [and] implies that this is going to be a hands-on relationship.”

Sainsbury’s house broker Shore Capital said the “surprise” move was “interesting” and “distinctive”, but questioned if Bestway had either the aspirations or the resources for greater ownership aspirations or if it was targeting a trading collaboration. Shore noted that the news shone a focus on Sainsbury’s “undemanding” metrics, noting the shares currently yield 10% on a free cash flow basis. It also suggested the news could lead to short closing in Sainsbury stock to support the share price.

Sainsbury’s shares are still down about 8% year on year despite a strong recent rally from October lows of 168.7p.

The shares had peaked at more than 310p in August 2021 amid takeover rumours following the private equity sales of Asda and Morrisons, but no approach for Sainsbury’s was forthcoming as global market and economic conditions deteriorated.

The supermarket’s all-time share price high was over 600p in mid 2007 and coincided with its largest shareholder Qatar Investment Authority building its stake that eventually led to an aborted takeover bid in 2012.

 

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