Sainsbury's pays pounds 294m for Boston stores group
Friday 27 November 1998
Dino Adriano, chief executive, said Star Markets was "an excellent fit" with Shaw's, Sainsbury's existing New England supermarket chain and would enable the group to achieve bigger buying leverage with suppliers. Star operates 53 stores, 33 of which are in the greater Boston area, where Shaw's, for historical reasons, was poorly represented.
The seller is Investcorp, the Bahraini investment bank best known for its investments in glitzy businesses like Gucci and Saks Fifth Avenue, the New York department store.
Yesterday's deal underlines the British retailer's determination to expand its American operations in spite of resistance in the City to its US adventures.
Sainsbury's has set a target of $10bn (pounds 6.25bn) of US sales within the next five to seven years. With this deal the group will have $3bn-$4bn of sales, putting it more than third of the way towards that goal. North America has been the graveyard of the global ambitions of several big UK retailers, including Laura Ashley, Body Shop, Tie Rack and Sock Shop.
However, with food retailers coming under increasing scrutiny from the competition authorities, opportunities to expand the business in the UK are dwindling. Sainsbury's has also been impressed at the way European rivals have forged ahead abroad, particularly Ahold, the Dutch chain, whose success at integrating a string of large US retail acquisitions has proved to investors that overseas expansion can work in the retail sector. Sainsbury's shares fell 8p to 520p on the news.
Analysts said that since Investcorp bought Star Markets four years ago for $285m, it had modernised the stores, putting in new equipment and investing in building up the brand. Star was loss-making in the year to the end of January as a result of having to meet $50m a year of financing costs. However, the underlying business made profits of $47.3m on a turnover of $1bn last year.
Sainsbury's is paying $490m, of which $269m is in the form of Star's existing debt and the remainder cash to be met from the firm's existing resources. Mr Adriano said the move was "wholly in line" with the company's North American strategy. "We anticipate from year three onwards we will achieve approximately $40m of synergies from central services, purchasing, the optimisation of distribution systems and own- brand development."
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