CVC Capital Partners ditched its plans to bid for Britain's J. Sainsbury on Wednesday, ending a nearly 10-week battle that pitted private equity against the supermarket group's founding family.
The 10.1 billion pound ($20 billion) offer collapsed because of CVC's failure to broker an agreement with the Sainsbury family, which owns a nearly 20% stake, and the supermarket chain's pension trustees, a person familiar with the matter said.
"After a number of discussions between the board of Sainsbury and the consortium, it became clear that the consortium would be unable to make a proposal that would result in a successful offer," CVC said in a statement.
Shares in Sainsbury, Britain's third-biggest supermarket group, were down 2.5% at 525 pence following the announcement but still trading sharply higher than before CVC revealed its bid plans on Feb. 2 when they stood at 410 pence.
Analysts said the share price reflected expectations Sainsbury management will now move to unlock value from its property portfolio -- conservatively valued at 7.5 billion pounds -- to stem pressure from activist shareholders frustrated by the failure of CVC's bid.
Sainsbury said in a statement bid talks had broken down because the board was unable to meet preconditions set by CVC and its partners Texas Pacific and Blackstone.
Those two groups pulled out of the consortium looking at Sainsbury on Tuesday, leaving CVC alone.
The consortium wanted the board to persuade pension trustees to accept its 582 pence bid without an assurance it would plug a pension deficit of as much as 1 billion pounds, a person familiar with the matter said.
It also wanted management to negotiate with the Sainsbury family, which refused to accept a bid of less than 600 pence.
Societe Generale analyst Tom Gadsby said Sainsbury's situation now mirrored that of French supermarket group Carrefour where activist shareholders Colony Capital and Bernard Arnault are seeking a property sell off.
With CVC's exit, property tycoon Robert Tchenguiz, with a 5% Sainsbury stake, is expected to push for changes.
"We believe Sainsbury could officially revalue part of all of its portfolio and move to a partial sale and leaseback followed by a share buyback," Gadsby said in a note.
In the credit derivatives market, credit default swaps fell 35 basis points on the news to 55 basis points, a London trader said, meaning it would cost 55,000 euros a year to insure 10 million euros of the company's debt against default.
The cost has fallen from around 140 basis points in the past two days as the prospect of a bid receded.