Overview: the shapland effect

When Darren Shapland became chief financial officer of Sainsbury’s in August
2005, he was joining a supermarket chain burdened by its glorious past and
struggling to punch its weight against rampant rival Tesco.

How things have changed. A steady period of like-for-like sales growth has
made the grocer fashionable again, but it is the interest of private equity
groups CVC, Kohlberg Kravis Roberts (KKR) and Blackstone that has really sent
its popularity ratings rocketing.

What Happened?

A private equity consortium consisting of CVC, KKR and Blackstone made its
interest in Sainsbury’s known at the beginning of February. The announcement
sparked a meteoric rise in the the retailer’s share price – 519p at the time of
writing, valuing the company at £9.5bn. A year ago the stock was languishing
more than 200p in arrears at 313p.

The dramatic rise, however, was based on more than the interest of some
private equity shoppers. Since his arrival, Shapland has worked closely with
Sainsbury’s chief executive Justin King to rejuvenate the retailer.

Shapland has worked tirelessly on improving the supply chain and restoring
margins. A few months before his appointment, Sainsbury’s was issuing profits
warnings. His work has helped to contribute to eight consecutive quarters of
sales growth. Sainsbury’s is now on target to increase sales by £2.5bn by March

What’s going to happen?

Shapland will face one of two scenarios. He will have to either fend off the
private equity interest with a stout defence, or go all out to squeeze as much
money as possible from the firms courting Sainsbury’s.

The second scenario seems more likely. Since CVC, KKR and Blackstone made
their interest known, private equity rival Texas Pacific has been named as
another possible bidder for Sainsbury’s.

Even Marks & Spencer is thought to be interested in joining the race,
which sets things up nicely for a fiercely fought and potentially lucrative deal
for the supermarket group.

If Shapland can manage a sale as well as he has worked on Sainsbury’s
recovery, shareholders are in store for a lucrative pay day.

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