Predators advance on UK retailer J Sainsbury. The Private Equity army is on the march again. Commentators are already comparing the coming battle to the famous Green/Rose contests for Marks & Spencers. But who is playing the Philip Green role? Will Justin King star as Stuart Rose? Will leaders be seen as making any difference, or will the financials decide the ultimate fate of the retailer?
The City is expecting imminent news of a takeover bid for the retailer Sainsbury’s. Trading levels in its shares have been at roughly triple last year’s average levels over the last six weeks. Names such as KKR (if not Kohlberg Kravis Roberts) are becoming more familiar, even to folk who are not regular readers of financial blogs or pink newspapers. The UK takeover watchdog has set a deadline of April 13th for a formal bid by a consortium of four such financial hunters including KKR.
The BBC’s business editor Robert Peston is blogger and super-sleuth. He was ahead of the journalistic pack over the proposed Cadburys split earlier this week. And he takes an interesting line of the current Sainsbury story, finding parallels with Philip Green’s abortive bid for Marks & Spencers.
He points out that Green’s bid was heavily influenced by the M&S pension funding arrangements. The same now applies to any bid for Sainsbury’s. Peston shows that the critical pre-battle negotiations may be between the Private Equity consortium and the company’s pension fund trustees. He shows that the figures involved could be enough to hike the offer price beyond acceptable risk-limits, within a bid which would load debt on the company against its realizable (‘strippable’) assets. The point is a cogent one.
The Sainsbury story
John James Sainsbury and his wife Mary Ann opened a grocery story in Drury Lane London in 1869, and founded a dynasty which was to become the UK’s leading grocers
For much of the twentieth century Sainsbury’s was the market leader. Much of the credit in the years of growth occurred under the leadership of John Sainsbury. Its subsequent misfortunes took place under subsequent leadership, including his nephew David, and Peter Davis. Lord David was to quit industry retaining his political and charitable interests.
The decline of the group in the 1990s was during the spectacular ascent of Tesco. Then in 2003 it also dropped behind the Walmart-backed Asda, a marker that probably contributed to the boardroom moves in 2004 which saw the arrival of CEO Justin King, and Chairman Philip Hampton. Since their arrival, the company has initiated a range of moves to reverse its decline,
Leadership theorists (there are a still a few around) still acknowledge that there are uncertainties over how, when and to what degree a leader makes a difference in any specific situation. This justifies interest in new leadership stories, and in the search for comparisons with earlier cases. In the battles for Marks and Spencers, the story was as much as a clash of leadership wills as of financial ratios. M&S acted by bringing in a leader to help the company fight off the bid.
Sainsbury’s acted to bring in a strong leadership team in 2004 (or anyway, to replace a team considered to have been off the pace). Comparisons between Justin King and Stuart Rose were, perhaps, inevitable. Terms such as dynamic, youthful, able, well-qualified, appear in press reports. He ticked his CV boxes even including time spent at M&S, in his previous appointment, where he had been Director of Food. Since arriving at Sainsbury’s he has been active and visible in efforts to strengthen the company’s market position.
You can look at the progress of the company in two different ways. The company has reported modest but repeated growth in quarterly sales. Significant improvements have been made in logistics. Customers appear to like the affirmation of the company’s interests in supporting a healthy and ethical lifestyle.
But the killer facts remain. The supermarket chain that had held the number one position in the UK has dropped far behind beyond the mighty Tesco, and has failed to close the gap on second place to Asda. Even on his appointment, there were takeover rumours surrounding Sainsbury’s future. Allan Leighton, the current Royal Mail chairman was particularly mentioned. Coincidentally, Leighton was King’s mentor during their time at Asda. The rumours resurfaced recently.
On being a good leader in a bad place
In a leadership story, the company can’t play the move of switching from Justin King. Indeed we can make the case that Justin King was already brought in to Sainsbury in 2004, in a Rose-type move to protect the company from predators. Nor is it obvious what he might do to change the course of events once a bid has been made.
The King may rest uneasy, but on this analysis, it may be seen as a case of a good leader being stuck in a bad place.