Sainsbury acquires second US chain

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The Independent Online
J SAINSBURY yesterday shrugged off the disappointment of losing William Low to Tesco three months ago, acquiring 16 per cent of Giant Food, a chain of 159 supermarkets based around Washington DC and Baltimore.

The dollars 325m ( pounds 205m) deal is the grocer's second American supermarket acquisition, following the staggered purchase between 1983 and 1987 of Shaw's, which owns 86 supermarkets in New England.

The move, which puts Sainsbury in the top 10 in the fragmented US grocery market, sent the shares 1.5p higher to 402p while the rest of the market tumbled.

Although a minority stake, it gives the group control over 50 per cent of the votes thanks to Giant's two-tier shareholding structure.

David Sainsbury, chairman, said there was no immediate intention of increasing the holding although analysts thought it was only a matter of time before it acquired the remaining 50 per cent of the voting stock, which is held by Giant's 83-year-old former chief executive, Israel Cohen.

Mr Sainsbury said: 'Giant is a very similar business to Sainsbury's, in terms of both the service and value for money it offers to customers and its general trading philosophy.'

Analysts said the acquisition had been expected and would probably have gone ahead even if Sainsbury had trumped Tesco in the contested bid for Low, the Scottish supermarket chain.

Tesco, which originally launched a 225p agreed offer for Low, was forced to return with a 360p-a-share bid after Sainsbury entered the contest with a 305p rival approach.

Sainsbury has made it clear that the increasing maturity of the UK grocery market and the increasing unwillingness of local government planners to approve greenfield sites meant growth would come from its smaller operations, including Shaw and the do-it-yourself chain Homebase.

In the year to February Giant made dollars 151.8m from sales of dollars 3.57bn, a return on capital of 23 per cent. That compared with dollars 2bn of sales and dollars 46.5m of profit at Shaw's.

Plans include an increase in the proportion of high-margin own-label lines, which account for more than 60 per cent of Sainsbury's sales in the UK, but a much lower proportion in the US.

At Shaw's the proportion is 25 per cent and 20 per cent at Giant, although its margins at 4.5 per cent are well ahead of the industry average of about 2.5 per cent.

Analysts welcomed the deal, although they said that on 20 times last year's earnings per share, it was not particularly cheap. Profit forecasts for the year to March 1995 were lifted to pounds 805m.

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