Why did Sainsbury's shares just skyrocket 15%?

• Sainsbury's (LON: SBRY) shares soared to a seven-year high on Monday (23 August)
• The stock rally came on the back of reports that US investment group Apollo is interested in taking over the company
• Last week, Morrisons, UK’s fourth largest supermarket, agreed to a £7 billion offer
• Sainsbury's shares are up by over 50% in 2021
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Sainsbury's stock price: what’s the latest?

Sainsbury's shares skyrocketed over 15% on Monday, following reports that several private equity funds are interested in acquiring majority stakes in the supermarket chain.

One of the funds, US investment group Apollo Global Management, is said to be the frontrunner of what is shaping up to be a bid war for the UK’s second largest supermarket chain, starting with a price tag of 7 billion pounds (US$9.53 billion).

Still, Apollo’s interest is ‘exploratory’, as it remains in talks to join fellow US investment firm Fortress Investment Group and other firms in bidding for Morrisons - the UK’s fourth largest supermarket group, The Sunday Times reported.

Last week, Morrisons agreed to a £7 billion bid proposal by US private equity giant Clayton, Dubilier and Rice. The Fortress-led consortium has since indicated it could offer a higher bid.

Thus, any further involvement by Apollo in that deal would mean the Sainsbury bid is off the table.

Despite the uncertainty, Sainsbury’s stock price hit a seven-year high of 341 pence at 14:00 (GMT+1) during the session.

These latest acquisition rumours about Sainsbury and Morrisons follow the sale of Asda, the country’s third largest supermarket chain, to EG Group and TDR Capital earlier this year. Apollo was a frontrunner in that deal but eventually lost out.

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How do analysts view Sainsbury's?

For now, Sainsbury’s market capitalisation stands at over £7.9 billion, after having risen over 50% so far this year.

One analyst, however, believes the FTSE 100 stock is worth more.

'Sainsbury’s is undeniably a good target for private equity with a considerable store estate, with the company having more than US$10 billion in property assets – more than its current market cap by decent margin,’ said Neil Wilson, an analyst at Markets.com.

'The Argos tie-up is another long-term growth lever and provides further scale, while profits are on the up again in the wake of the pandemic, and net debt has come down.

'It’s hard to beat those reliable cash flows – even without a big sale & leaseback plan the supermarkets are generating the kind of yield that is hard to get elsewhere,’ he added.