Could Sainsbury's fall victim to activist investors?

Crystal Amber is said to be sniffing around Sainsbury's for its property portfolio, as the big four supermarkets continue to weaken.

by Adam Gale
Last Updated: 21 Jan 2015

The supermarket giant Sainsbury’s is being targeted by Crystal Amber, an activist hedge fund, according to the Sunday Telegraph. That might not sound so bad to the uninitiated but, unfortunately for Sainsbury’s,  ‘activist hedge funds’ aren’t in fact filled with long-haired investment bankers with peace symbols drawn in biro on their hands, backing hemp farm communes and independent coffee shops.

Crystal Amber is reportedly looking to ‘flush out’ a bid for Sainsbury’s that will increase shareholder value. Essentially, Sainsbury’s assets have retained their value (£9.6bn in property alone) while its market capitalisation has tumbled from around £10bn before the crash to a veritably lightweight £4.6bn now. This means that if a fund were to take control of the company, it could sell those assets and ‘return’ the surplus money to shareholders (who now of course include the new investors) for a tidy profit.

For Sainsbury’s itself, which is in the trenches after reporting a £290m loss and admitting a quarter of its stores weren’t performing properly, this could hardly come at a worse time.

Crystal Amber is not exactly well placed to pull this off on its own, however. While it has stakes in Aer Lingus and Thorntons among others, according to its most recent reports, it currently does not have a stake in Sainsbury’s. Besides, the fund has a mere £118m of assets under management, which means it will need serious help if it’s to take on of the ailing, £4.6bn supermarket beast.

Unfortunately for Sainsbury’s, that help could be at hand. The Telegraph reported that Crystal Amber is in talks with a sizeable but unknown US investor, which isn’t exactly reassuring. Just as bad, there are possible threats from the inside, the most prominent of which being Qatar’s investment fund, which already owns 26% of Sainsbury’s and tried to acquire the firm for £10bn in 2007.

There are various scenarios whereby Crystal Amber could act as a ringleader to orchestrate a bid on Sainsbury’s, but it’s not too likely. For a start, Sainsbury’s has liabilities as well as assets. Its net debt alone is £2.4bn. Also, who’d buy a vast portfolio of enormous out of town supermarkets? Tesco?

There were rumours in January that US funds Sandell and Elliott were looking to do the same to Morrisons, and nothing came of that. On the other hand, of course, the outlook is bleaker now for supermarkets than it was then. Stranger things have happened.

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