The thing about Sainsbury’s

KKR has taken the prize and bagged the first FTSE 100 company – Alliance Boots – to be taken private by financial sponsors.

However, the future of such deals lies not in how successful KKR is with Alliance Boots, but instead with the fate of that other FTSE 100 company recently courted by private equity – J Sainsbury.

The failed bid by the CVC-led consortium has left the Sainsbury board with no choice but to justify its decision not to accept the possible €16.2bn offer.

It now has to prove that it can itself deliver the growth promised by the private equity guys, and subsequently return value to shareholders to rival that offered by the CVC consortium.

So far, the board is reported to be planning to invest about £750m a year in expanding and refurbishing its supermarkets and creating 15,000 jobs – the equivalent of a 10% increase to its current 150,000 workforce. According to reports these were some of the plans put forward by the private equity consortium.

Now all this is very ironic at a time when the media and the unions are up in arms about the asset stripping barbarians taking over some of the nation’s treasures. The whole debacle has proven that there is more potential growth in the business that the company has not exploited. And, that the plans laid out by the private equity group are the best way to implement this growth. Where does this leave the critics?

At the same time, property entrepreneur Robert Tchenguiz, who recently increased his stake in Sainsbury to just over 5%, called for the board to realise its property value following the termination of private equity interest in the UK retail chain.

Tchenguiz has put forward a radical proposal that involves turning the UK’s third largest supermarket into two separately listed companies. He wants to see one highly leveraged company hold Sainsbury’s property assets, perhaps borrowing as much as 60% of the value of the properties. Such a move would increase the group’s borrowings from its present level of £1.6bn to more than £6bn.

The other listed vehicle would be the supermarket operating company. A large proportion of the profits made by this company would service the debts of the other one. This op-co/prop-co structure is much loved by the private equity industry and has been used across a number of sectors including healthcare and retail.

It is yet to be seen if this will actually happen – but the aftermath of the failed bid has galvanised this public company into action. And if the group is successful in its growth plans, it will hopefully shake some public companies out of their malaise and prove to them that they should and can do what private equity does.

On the downside for private equity is that it might well reduce take-private opportunities.