Sainsbury sale shelved

A day after the dust has settled it is still barely credible that the Qataris were unable to find an extra £500m to finance their £10.6bn bid for Sainsbury.

Scrabbling the cash together to meet an additional 5% cost could hardly have proved a problem. After all, the price of oil, the foundation of the Qatar Investment Authority’s wealth, has jumped by a fifth since it first approached Sainsbury six months ago.

However, what has changed is the valuation model for the supermarket chain. The late lamented Richard ‘Ratty’ Ratner, the veteran retail analyst at Seymour Pierce, almost choked when he first heard that Sainsbury was being circled by financial buyers.

At the time of the CVC consortium’s initial approach, back in February, he published a note questioning how the proposed offer could provide a sufficient return for the bidders. The mooted 550p a share deal valued Sainsbury at an eye watering 40 times earnings.

The key to the deal was always unlocking the apparent hidden value of the chain’s freeholds. This is what attracted property investor Robert Tchenguiz to take a stake in the chain. His former lieutenant Paul Taylor was running the same model for the Qataris in his role as the chief executive of Delta Two, their investment adviser.

Some analysts always questioned this way of looking at things. After all, how could a big out of town store be used for anything but a big superstore? In any case Sainsbury had already mortgaged much of its property last year, setting up a big securitisation issue to take out most of the value.

The attitude of the founding family, which owns 18% of the company, and the pension fund trustees were relatively insignificant when compared to these overriding valuation issues.

The Qataris wanted to fork out more than the net asset value of the stores. With interest rates rising, property prices falling and a grim Christmas on the retail front in store, the sums couldn’t add up for a deal on this basis.

However, anyone could have told that to these new kids on the block several months ago. After all, fellow investor Robbie Tchenguiz had already pulled a property deal with pub chain Mitchells & Butlers for similar reasons and CVC’s private equity consortium also fell apart over pricing.

What is strange is that for such an investor with a seemingly limitless investment horizon, such short term issues should have proved insurmountable.

• The long-running auction for Emap’s business and consumer titles has taken another twist with European LBO firm Cinven dropping its interest in the latter, which publishes FHM and Grazia. Reports said that Cinven baulked at a £700m (US$1.45bn) price tag at a time when the magazine market is facing substantial challenges. However, Cinven is believed to still be in the second round of bidding for Emap’s business-to-business arm. An official announcement on the status of the bidding is expected in mid-November. Cinven’s withdrawal is not expected to be the end of private equity interest in the consumer unit. US media group Hearst is understood to have conducted talks with UK private equity media specialist Exponent Private Equity about a joint bid. Reuters added that Exponent has lined up former Emap chief executive Robin Miller for a potential bid.

• Sigma Acquisitions, a special purpose investment vehicle of mid-market private equity house Lyceum, acquires Synexus for US$38m (€55.7m). Sigma Acquisitions has agreed to buy UK clinical study recruitment and management specialist, Synexus, at 78 pence a share, valuing the company at about £18.1m (US$38m).That is a 52.9% premium to the closing price of 51 pence per Synexus share on October 18 – the last day before Synexus admitted that it had received an approach. Sigma has irrevocable acceptances of its offer by shareholders holding 54.18% of the equity in Synexus.