Sainsbury’s decides not to offload its financial services division after a year of takeover speculation
- Sainsbury’s had been in advanced talks to sell the division for £200m
- Covid-19 has badly affected demand for Sainsbury Bank’s financial products
- The supermarket chain has been the subject of growing takeover speculation
Almost 12 months after first confirming it had received interest in a possible takeover, Sainsbury’s has said it will not sell its banking arm.
The supermarket giant had been in advanced talks back in August to sell the division for £200million to American private equity firm Centerbridge Partners, according to reports by Sky News.
However, it has concluded that a sale of its financial services arm would not provide ‘better value’ for investors than if it was kept under its control and so has ended all discussions.
No sell-off: Sainsbury’s concluded that a sale of its financial services arm would not provide ‘better value’ for investors than if it was kept under its control
Reports first circulated in late October last year, also from Sky, that Sainsbury’s was looking to offload the division, which has about two million customers who use a wide range of services, including car loans, insurance, and savings accounts.
Soon afterwards, NatWest Group was mentioned as a potential new owner in what would have been its first major acquisition since taxpayers bailed out the financial services firm during the 2008-09 global financial crisis.
That came as the coronavirus pandemic was causing a troubling time for Sainsbury’s Bank, which plunged from a £48million profit in the 2019-20 financial year to a £21million loss the following year.
Demand for its financial products, such as credit cards and personal loans, dwindled as Britons tightened their belts, while overseas travel restrictions badly affected travel money purchases.
But even before the recent global health crisis, low interest rates severely threatened the group’s profitability, and the supermarket stopped putting more capital into its banking division.
It also decided to exit the low-margin and highly competitive mortgage market in order to focus on less capital-intensive services such as insurance and credit cards.
Takeover battle: Sainsbury’s was the subject of increasing takeover speculation just as a bidding war was being waged for Bradford-based supermarket Morrisons
‘We continue to make progress strengthening and simplifying our financial services business in line with our strategy,’ the FTSE 100 business stated today.
The grocery chain itself has been the subject of increasing speculation of a private equity takeover, erupted just as a bidding war was being waged for Bradford-based supermarket Morrisons.
Morrisons shareholders overwhelmingly agreed this week to accept a 287p-per-share offer from Clayton, Dubillier & Rice, beating out bids from a consortium led by Fortress Investment and including Apollo Global Management.
In late August, the Sunday Times reported that New York-based Apollo Global Management was taking an ‘exploratory’ look at Sainsbury’s after failed approaches to buy Asda and Morrisons.
Shares in Sainsbury’s skyrocketed soon after the story broke, having already grown steadily for over a year, particularly since Czech billionaire investor Daniel Kretinsky expanded his stake in the business to nearly 10 per cent.
Loss making: Despite growing customer sales, Sainsbury’s made a massive loss in the last fiscal year due partly to the high costs of Covid safety measures
The rising share price has caused havoc for some major short-sellers, including hedge fund Third Point, which closed its whole ‘short’ position on Sainsbury’s soon afterwards.
Though Sainsbury’s has never confirmed whether it has been in discussions about being bought, it has hired boutique advisory Robey Warshaw to help prepare it for such an eventuality.
‘A more streamlined Sainsbury’s might have made more sense as a bid target, and there has been significant speculation on this front since the takeover of rival grocer Morrisons,’ remarked Danni Hewson, a financial analyst at AJ Bell.
Sainsbury’s has seen very strong sales levels during the pandemic as grocery stores were allowed to stay open because of their essential status, though the chain also recorded a massive surge in customers making online orders.
But in the last fiscal year, the group registered a massive loss due to the high costs of Covid safety measures, more than £400million in one-off restructuring costs from closing hundreds of Argos stores, and a large writedown on the value of its stores and its banking division.
Shares in Sainsbury’s were down 0.1 per cent to 295.8p at around midday on Friday.