The Sainsbury’s share price started the week on a high note, jumping 15% to a seven-year high, fuelled by growing speculation of an impending buyout bid. However, after surpassing 2019’s high of 341.80p by just 0.20p, the share price turned sharply lower, settling Tuesday -4.85% at 323.50p.
It was only a matter of time before J Sainsbury plc (LON: SBRY) attracted the attention of private equity. Following the Issa brothers’ £6.8 billion buyout of Asda in 2020, the focus has turned to the remaining British supermarket chains.
Morrisons was next in line, and after months of haggling, Britain’s fourth-largest grocer finally succumbed a to £7 Billion bid from US private equity firm Clayton, Dubilier & Rice. Therefore it came as no surprise when the Sunday Times reported Apollo Global Management was readying a bid for Sainsbury’s. Although basis yesterday’s close, SBRY had a market cap of £7.49 Billion which may leave the rumoured £7 Billion bid lacking.
The daily chart shows that Sainsbury’s share price was up more than 36% year-to-date even before Sunday’s report. And much of that was due to investors jumping into the stock ahead of a potential takeover bid. Furthermore, at Monday’s high, SBRY had increased 20% in August alone. However, Tuesday’s decline narrowed that to 14%. Nonetheless, the price may be getting ahead of itself. Furthermore, until a bid is on the table, there are no guarantees it will be forthcoming. Not to mention that it may be underwhelming and could be rejected.
Until there is some clarity, Sainsbury’s share price will remain in a state of flux. The likeliest scenario is that SBRY will fluctuate between 3,00p and 342p. However, of course, news flow could force the price out of this range. But in which direction is a gamble. Therefore, new investors may wish to remain on the sidelines.
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