Is J Sainsbury plc Being Eyed Up For Another Qatari Takeover Bid?

By Kevin Godbold | Fool.co.uk – Fri, Jul 25, 2014 14:03 BST

There's nothing quite like a languishing share price to ignite takeover rumours, and today's spontaneous combustion surrounds London-listed supermarket chain J Sainsbury (LSE: SBRY)  (NASDAQOTH: JSAIY.US).

To be fair, it doesn't seem like all hot air from the rumour-mongers as there's a bit of history behind this one, and some still-engaged vested interests.

Middle-Eastern promise

The Qatar Investment Authority, an investment vehicle for the state of Qatar, holds 26% of Sainsbury's shares and has done since a failed takeover bid nearly seven years ago. Back then the Qataris offered £6 a share, a figure that today's Sainsbury's share holders would snatch up without question, no doubt.  

Now, with the shares at around 324p, the chatterati have it that Qatar is talking big money again (to those other major shareholders, the Sainsbury family) with a view to tabling another offer at around £5 a share.

Like other frustrated investors, the rumour goes that the Qataris want to see some action by the Sainsbury's board to enhance shareholder value, maybe by floating the firm's property portfolio worth around £11bn by some estimates. What better way to get what you want than by taking a controlling interest and being an activist investor? It certainly must be tempting at this share price, but then the landscape of the supermarket industry seems more barren today than it did seven years ago, so will the value in Sainsbury's seem as great to deep-pocketed investors as it once did?

On a mission

Qatar's self-stated goal is to become a major international centre for finance and investment management, a vision shared by its government, people and institutions, it reckons. The state has a track record of investing in different asset classes, including listed securities, property, alternative assets and private equity in all major capital markets as well as the newer emerging markets.

Will Qatar's eagerness to bag an iconic British brand and a tranche of the UK property market overcome any hesitation over mundane issues such as valuation? It's certainly possible. Some estimates set the Qatar firepower at around £103 billion.

What now?

Buying just because of takeover rumours isn't a good idea, because the event in speculation might not occur and that can leave new investors over-paying if the share price rises on speculation.

However, at today's 324p share price Sainsbury's is trading on a forward dividend yield of around 5.1% for 2016 with a forward P/E rating of about 11. That doesn't strike me as an over-valuation given that forward earnings cover the dividend payout almost 1.8 times and city analysts forecast a modest earnings slide of 1% that year.

A takeover offer for Sainsbury's would be icing on the cake for investors.

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Kevin Godbold has no position in any shares mentioned. The Motley Fool has no position in any of the shares mentioned.