Sainsbury’s, Tesco, and Ocado stock jumps on takeover speculation after Morrisons auction

Shares in British supermarkets surged today amid speculation that they could be targets for private equity bids.

Sainsbury’s jumped by 13.8p — or 4.8% — to top the FTSE 100. Tesco was the second biggest riser with a gain of 1.6% and Ocado was just behind, up 1%.

Momentum in the sector follows the conclusion of the bidding war for Morrisons over the weekend. Private equity firm CD&R won out with a 287p-a-share bid in an auction on Saturday. The offer values Morrisons at £9.8 billion including debt. CD&R saw off competition from a consortium led by Fortress.

US investor Fortress has been left with significant dry powder to spend and Joshua Pack at the firm has fuelled speculation that Fortress could return for another bid elsewhere in the sector.

“The UK remains a very attractive investment environment from many perspectives, and we will continue to explore opportunities to help strong management teams grow their businesses and create long-term value,” Pack said in a statement.

Analysts see Sainsbury’s as an obvious alternative target. The supermarket has reportedly already retained boutique advisory Robey Warshaw to help it prepare for a potential takeover bid.

Sophie Lund-Yates at Hargreaves Lansdown said: “A weak pound and low interest rates mean UK companies could look more enticing now than they have in a while, and further offers for UK businesses can’t be ruled out.”

Morrisons follows Asda as the second major supermarket to fall into private equity hands this year. Investors are attracted by supermarkets’ strong cashflow, property holdings and the relative value offered by UK public markets.

The takeovers have fuelled concerns about potential job losses, asset stripping and underinvestment in the sector. Private equity is known for using aggressive tactics to drive returns.

Morrisons chair Andy Higginson told the BBC’s Today Programme that private equity “gets a bit of a bad rap” but was “focused on growth and trying to grow the business”.

CD&R has promised to be a responsible owner and said it wants to continue to implement the company’s current business plan.

Shares in Morrisons fell 11.2p, or 3.7%, to 285.8p today after the weekend auction failed to reach the level expected by some investors and analysts. Shareholders will vote on whether to approve the takeover on October 19.