Supermarkets in investors’ sights after Morrisons deal

The FTSE 100 closed down 0.2% amid falls across global markets.

Sainsbury’s shares spiked amid speculation it might be the next takeover target (Danny Lawson/PA) (PA Wire)

Sainsbury’s finished top of the FTSE 100 index on Monday after a battle to take over rival supermarket Morrisons ended in a sale to a US private equity company.

The buyer Clayton Dubilier & Rice (CD&R) will likely pay £7 billion for Morrisons, after winning an auction process. Shareholders still get to vote on the deal later this month.

But Sainsbury’s 3.4% rise did not offset falls elsewhere on the FTSE, including in Morrisons’ share price, and the index which closed down 16.06 points, or 0.2% to 7,011.01.

Morrisons might have sailed through the checkout and is now sitting in the bagging area waiting to see if the sale goes through but there are still two tempting morsels left on the shelf

AJ Bell financial analyst Danni Hewson

AJ Bell financial analyst Danni Hewson said that the market is now thinking about who might be next in the sights of a large potential bidder.

“Investors seem to be betting that this latest episode of supermarket sweep hasn’t rolled the end credits quite yet,” she said

“Morrisons might have sailed through the checkout and is now sitting in the bagging area waiting to see if the sale goes through but there are still two tempting morsels left on the shelf.

“Whilst most of the money seems to favour Sainsbury as the most likely target, there is much speculation that those private equity boffins might well be pawing over Tesco’s receipts.”

She added that one potential bidder might be Fortress, which lost the Morrisons auction to CD&R.

“The thing about the UK supermarket is that it is a money-spinner and though competition is back on the menu after the discounters came off the bench that they’d rested on during the Covid crisis, there is a certain certainty about the business model that may inspire a second or even a third glance.”

Other strong performers on Monday included oil giants BP and Shell, which were both in the green amid a strong oil price. Brent crude oil had risen 2.7% to 81.39 dollars per barrel by the end of the day.

The price was pushed up by reports suggesting that oil-producing organisation Opec and its allies are unlikely to announce further production increases.

In Europe, the Frankfurt Dax index closed down 0.8%, while the Cac 40 in Paris dropped 0.9%. US markets were heavily in the red as the trading day ended in Europe. The Dow Jones had lost 1%, while the S&P 500 was down 1.4%.

In currency markets, sterling rose 0.1% to 1.3611 against the dollar and 1.1714 against the euro.

In company news, retailer French Connection saw its share price soar 21% after its board agreed a plan to sell the company to a major shareholder for £29 million.

Cake Box was also strongly in the green, up 13%, after saying that sales almost doubled in the last six months and reassuring shareholders it has several months’ worth of ingredients in store.

Flutter Entertainment hired a new boss for a US arm as it decides whether to spin off the business. Shares dropped 2.2%.

The biggest risers on the FTSE 100 were Sainsbury’s, up 9.6p to 294.1p; Imperial Brands, up 30p at 1,557p; BP, up 6.5p at 344.45p; Informa, up 9.8p at 570.6p; and Shell B shares, up 25.2p at 1,670.8p.

The biggest fallers were BT, down 7.4p at 151.45p; Morrisons, down 11.1p at 285.9p; Compass, down 42.5p to 1,516p; Scottish Mortgages, down 32.5p at 1,352p; and Intermediate Capital, down 47.5p at 1,999.5p.