(Bloomberg) --
Shares in J Sainsbury Plc rose as much as 12% after a report that Apollo Global Management Inc. could be taking a look at Britain's second-largest grocer amid wider consolidation in the sector.
Apollo, which has $88 billion of assets under management, is interested in the U.K. supermarket industry, having previously lost out on the chance to take control of Asda, the country's third-biggest grocer, to the Issa brothers and TDR Capital.
Apollo isn't holding talks with Sainsbury, according to people familiar with the matter, and the buyout firm has not hired advisers to explore a potential deal, one of them said. The focus remains on partnering with Fortress Investment Group on its bid for Wm Morrison Supermarkets Plc.
Apollo already announced last month that it's in talks with a consortium led by Fortress. If it joins the group, that could rule out any potential involvement in a bid for Sainsbury.
The U.K.'s Sunday Times reported that Apollo “is said to be running the rule over” Sainsbury. The gain in the shares early Monday was the biggest intraday increase since March 2020.
Representatives for Apollo and Sainsbury declined to comment.
Sainsbury has been attracting speculation since its attempt to merge with Asda was blocked by U.K. antitrust regulators. Shares in Sainsbury have risen by more than 40% since the start of the year. The grocer's two largest shareholders are the Qatar Investment Authority and Daniel Kretinsky, a Czech billionaire, who between them own almost a quarter of the stock.
Asda Deal
Speculation that Apollo is interested in Sainsbury is “effectively rehashing a potential story that has been around since Apollo lost out to TDR and the Issa brothers for Asda,” said Clive Black, an analyst at Shore Capital, a house broker to Morrison.
The outcome of Fortress's pursuit of Morrison could be key to Apollo's decision-making, he said.
“If Apollo does not participate in Morrison's future, then we cannot discount that the private equity group nor other mega-finance houses will consider looking at Sainsbury,” Black said in a note to clients. “Accordingly, expect real and made-up noise to continue.”
Britain's supermarkets are attracting intense buyout interest as the economics of the industry have dramatically improved since the onset of the pandemic, which elevated sales and accelerated changes in shopping habits. Supermarkets generate substantial cash and have large property portfolios. The rise in online shopping has made e-commerce more profitable.
Sainsbury does not own as many of its own stores as Morrison, but many of its outlets are located in affluent parts of the U.K. It also has a strong convenience franchise and its online business is growing fast.
Clayton Dubilier & Rice LLC last week raised its offer for Morrison to 7 billion pounds ($9.5 billion) as the bidding war with Fortress to win control of Britain's fourth-largest grocer intensifies.
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