Here's What Analysts Are Saying About Sainsbury's Deal Collapse

(Bloomberg) -- J Sainsbury Plc investors will now have to re-focus on the British supermarket operator’s stand-alone prospects after the U.K. Competition and Markets Authority blocked its planned merger with Walmart Inc.’s Asda chain. Even with expectations that the deal wouldn’t get antitrust approval, Sainsbury shares fell by as much as 6.4% Thursday and were trading at levels not seen since June 2016. Concerns may now mount as to how the retailer will combat a deepening loss of market share to Tesco Plc, analysts said.

Sainsbury’s 450 million-pound ($580 million) 1.25 percent convertible bonds dropped to below par for the first time since March 2018, data compiled by Bloomberg show.

Here’s what analysts are saying:

SHORE CAPITAL (sell)

• Miscalculation, stemming from the CMA’s 2017 decision to approve the Tesco/Booker merger, was at the heart of the deal’s failure, as “the merger parties did not assess the change of the guard” at the regulator
• The future is tough in Sainsbury’s core market, with questions about the “robustness” of financial forecasts for upcoming results on May 1
• Broker asks where Sainsbury goes now, and whether a “margin reset” is needed to help its supermarket business compete

MARKETS.COM

• Sainsbury is now the “squeezed middle,” losing market share to both discounters and the more premium brands
• Concern is that the company had no credible plan except the Asda merger
• Shares may retest multiyear lows before any turnaround can take effect

JEFFERIES (Hold)

• Focus will now return to Sainsbury’s stand-alone value
• Share-price estimate is cut to 200 pence from 230p, due to limited visibility about how Sainsbury will deal with increasing market share losses to Tesco

BERNSTEIN (market perform)

• Sainsbury may look cheap “but that does not mean it is an investment opportunity just yet”
• Stock will remain cheap as long as investors brace for further negative catalysts, and as long as the “cost of a potential reset is unknown”

--With assistance from Paul Jarvis.

To contact the reporter on this story: William Canny in Amsterdam at wcanny3@bloomberg.net

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net, Tom Lavell, Jon Menon

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