CVC admits defeat on Sainsbury bid

The Sainsbury family seems to have triumphed in its bid to keep the UK retailer out of private equity hands, after the last remaining members of the buyout consortium admitted defeat in their battle to take the company private.

CVC Capital Partners has formally withdrawn its interest in UK grocery retailer Sainsbury’s, finally consigning the controversial £10 billion (€14.7 billion; $19.8 billion) take-private bid to failure.

CVC said in a statement that the consortium is “no longer considering making an offer for Sainsbury.” The firm, which has been leading a four-strong private equity consortium in an attempt to buy the company, had been in discussions with shareholders and pension fund trustees since its interest was first revealed in February.

However, as the Takeover Panel’s “put up or shut up” deadline of April 13 loomed ever larger, the buyout firms appeared to be no closer to persuading Sainsbury’s of the merits of their offer – even after they made an indicative 582 pence per share bid over the weekend.

The bid foundered on opposition from the founding Sainsbury family, who control about 18 percent of the shares. Some members of the family expressed an unwillingness to sell at any price, while Lord Sainsbury of Turville, who owns a 7.75 percent stake, refused to consider any bid below 600 pence per share – significantly above the company’s current or past share price.

The company’s pension fund trustees, who were reportedly looking for a £1 billion payment from the buyout firms to plug an existing pension deficit, also proved to be a stumbling block.

CVC’s statement provided an unusually high level of detail about the content of its proposed bid. The consortium was planning to finance the deal through cash and “a stub equity partial alternative,” while its plans for the business included: “a major investment and job creating business plan, wide employee ownership, annual disclosure, independent non-executive directors and a proposal for the continued security of the pension schemes.”

However, the buyout firms conceded: “After a number of discussions between the Board of Sainsbury and the Consortium, it became clear that the Consortium would be unable to make a proposal that would result in a successful offer”.

The continuing opposition to the deal had already seen CVC lose at least one of its potential partners. Kohlberg Kravis Roberts pulled out of the consortium last week, after its concurrent bid for health and beauty group Alliance Boots gave rise to possible competition issues.

The Blackstone Group and TPG were also reported to have withdrawn from the bidding group on price grounds in the last few days, although both were party to today’s statement. 

The three buyout firms insisted there were no hard feelings towards Sainsbury’s. “The Consortium remains great admirers of Sainsbury, its management and employees,” the statement said.

In response, Sainsbury’s put out its own statement, suggesting that the bid fell down because of “certain pre-conditions” attached to the consortium’s financing structure. It added: “Looking forward the Board believes that Sainsbury’s has great potential and it is committed to completing its Making Sainsbury’s Great Again recovery plan.”