Sainsbury's ends talks on selling bank unit

·2-min read
LONDON, UNITED KINGDOM - 2021/03/18: Shoppers walk past Sainsbury's supermarket after making purchases in London. (Photo by Dinendra Haria/SOPA Images/LightRocket via Getty Images)
Sainsbury's bank currently has around two million customers, and offers products including credit cards and home insurance. Photo: Dinendra Haria/SOPA Images/LightRocket via Getty Images

UK supermarket chain Sainsbury’s (SBRY.L) has confirmed it has ended its discussions over the sale of its banking unit.

The company, which is Britain’s second largest grocer, said the potential bid did not offer good value for shareholders.

"Whilst the board of Sainsbury's believe that it was in the best interests of shareholders to explore these expressions of interest, it has concluded that these do not offer better value for shareholders than will be realised through retaining Sainsbury's Bank," it said in a brief statement.

“We continue to make progress strengthening and simplifying our Financial Services business in line with our strategy and we remain comfortable with consensus profit forecasts for the division.”

Current analyst consensus for Financial Services underlying operating profit for the current fiscal year are between £22m ($30) and £26m, £43m for 2022-23 and £49m the following year.

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The bank, which was originally established in 1997 as a joint venture between the retailer and Bank of Scotland, set a target of doubling underlying pre-tax profit, and returning cash to the parent company by 2025.

It currently has around two million customers, and offers products including credit cards and home insurance.

The unnamed suitor first stepped onto the scene in November last year with a possible acquisition for the Edinburgh-based banking arm.

According to reports, the bank was understood to be in talks with US private equity group Centerbridge Partners, with the deal thought to be worth about £200m.

Shares were down 0.7% in London on the back of the news.

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Danni Hewson, financial analyst at AJ Bell, said: “Sainsbury’s disappointed the market with the news that it is ending talks over a sale of its bank division. A more streamlined Sainsbury’s might have made more sense as a bid target, and there has been significant speculation on this front since the takeover of rival grocer Morrisons.”

Earlier this week Morrisons (MRW.L) shareholders gave US firm Clayton, Dubilier and Rice (CD&R) the green light on its £7bn ($9.6bn) offer for the company.

CD&R, which counted former Tesco boss Terry Leahy as a senior adviser, narrowly won an auction for Morrisons after bidding a penny a share more than Fortress Investment Group.

CD&R emerged victorious from its 287p per ordinary share against a 286p offer from its rival bidder. The winning bid represented a 61% premium on Morrisons’ share price before takeover interest was made public in June.

The total value of CD&R’s final offer, when including debt, is worth £9.8bn.

Watch: Could Sainsbury's be next for a takeover bid?

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