Analysis | Bestway Tastes the Difference With Sainsbury Stake

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Anwar Pervez built wholesaler Bestway Group Ltd. from a single convenience store. His decision to invest in Britain’s second-biggest supermarket chain J Sainsbury Plc looks equally inspired. There is little downside when it comes to his acquisition of a 4.5% stake in the grocer.

Bestway first announced the holding late last month. It had been building its position for some time before crossing the 3% threshold that required the disclosure. Shares in Sainsbury are up more than 50% since their October low, so, depending on when Bestway bought, it could already be sitting on a profit.

Pervez’s company said when it announced the stake that it was not considering a takeover offer for Sainsbury. Indeed, a bid for the supermarket, with a value of £6.2 billion ($7.5 billion) before any premium, would be a big stretch for the conglomerate, which also includes a bank and a cement business. The privately held company generated £4.5 billion of sales in the year to June 2022, and £400 million of profit.

Bestway would have to borrow heavily to acquire Sainsbury, something that Pervez may be reluctant to do. He has an aversion to debt but likes freehold property.

But what if the endgame is not an acquisition of Sainsbury, but the supermarket buying Bestway?

There’s already a precedent in Tesco Plc’s £4 billion purchase of wholesaler Booker Group Ltd. five years ago. Booker generated about £5 billion of sales in the year to March 2017. This increased to £7.8 billion in the year to February 2022. Net income was £153 million in 2017. Tesco doesn’t disclose Booker’s earnings, but this could easily have doubled, with the deal also delivering £200 million of cost savings along with healthy cash generation.

Sainsbury has dabbled with different formats before, eyeing wholesaler Nisa Retail Ltd. in 2017, and having a partnership with Danish discount retailer Netto between 2014 and 2016. So it may be amenable to exploring a move into cash and carry.

Bestway’s wholesale business generated sales of £2.9 billion in 2022, and £71 million in pretax profit. Tesco and Sainsbury each trade at 0.4 times sales. So very simply, putting Bestway’s wholesale unit on this multiple would value it at about £1.2 billion. Sainsbury could acquire the cash and carry arm from its owners the Pervez, Choudrey and Sheikh families in return for a 15%-20% stake in the supermarket. With Bestway’s existing holding, this could give them up to 25%.

The two companies could benefit from buying scale and potentially cost savings — at least £100 million based on Tesco and Booker. Bestway also owns Well Pharmacy, the UK’s largest independent chemists’ chain. That could prove useful to Sainsbury given that Lloyds Pharmacy is planning to close its outlets in the supermarket’s stores. Meanwhile, Tesco’s purchase of Booker encountered few competition hurdles, unlike Sainsbury’s aborted £7 billion acquisition of Asda in 2018.

If this is Pervez’s aim, he didn’t need to buy shares in Sainsbury. But as Sports Direct (now Frasers Group Plc) founder Mike Ashley has demonstrated, a sizable shareholding gets management’s attention.

Even if Bestway doesn’t go down this route — it has said its holding is for investment purposes after all — there’s another way it could benefit.

Sainsbury already had two big shareholders: the Qatar Investment Authority with 14.3%, and Czech billionaire Daniel Kretinsky with 10.1%. Add in Bestway’s 4.5%, and if any potential bidder could persuade these holders to sell, it would have support for an offer from investors representing close to 30% of the shares.

The seizing up of the leveraged-loan market makes a tilt from private equity less likely than it may have been a couple of years ago. But Pervez is known to take a long-term view. Having the opportunity to participate in any future industry consolidation is much better than looking through the shop window.

More From Bloomberg Opinion:

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• Maersk’s Raging Profit Party Ends in a Hangover: Chris Bryant

• What Consumer Nightmare? Brits Still Want to Travel and Shop: Andrea Felsted

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Andrea Felsted is a Bloomberg Opinion columnist covering consumer goods and the retail industry. Previously, she was a reporter for the Financial Times.

More stories like this are available on bloomberg.com/opinion

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