Sainsbury’s/Bestway: stake deal may herald further collaboration

Starting with a London corner shop in 1963, Sir Anwar Pervez built Bestway into one of Britain’s largest wholesaling business. That underpins the expectation that some industrial logic lies behind the family-owned company’s surprise acquisition of a £200mn holding in Sainsbury’s on Friday.

Announcing the 3.45 per cent stake, Bestway stated that it had no plans to launch a takeover but looked forward “to supporting the executive management team”. Shares in Sainsbury’s rallied up to 5 per cent in response.

A purely passive financial investment might have some merit. Sainsbury’s recently raised its full-year guidance after strong Christmas trading. Its tilt towards better value food in recent years is helping fend off tough competition from Aldi and Lidl. The discounters took market share from recently acquired Asda and Morrisons. Those two are constrained by high debt servicing costs, which should support remaining listed groups Sainsbury’s and Tesco.

After a couple of years when total returns for Tesco and Sainsbury’s lagged behind the FTSE All-Share index, Sainsbury’s has outperformed since October. Its shares are up almost 40 per cent. A valuation gap with Tesco has closed. Both now trade at just under 12 times forward earnings, according to Refinitiv.

Bestway should come under some pressure itself. Like most UK wholesaling groups, it is also active in convenience retailing via its Costcutter chain. Competition eased due to consolidation led by Tesco’s acquisition of wholesaler Booker in 2017, but has now returned. Nisa, acquired by Co-op in 2017, pledged to lower prices at the end of last year.

When Tesco acquired Booker, it estimated it would make cost savings of about £175mn a year, largely in procurement and distribution. Booker also managed to take market share as a result. As rising costs put the squeeze on every part of food supply chains, greater collaboration between Bestway and Sainsbury’s cannot be ruled out.