Boots v Sainsbury, PE v the Market
Posted on May 16, 2007 by Richard Beddard
Filed Under Companies, Investing |
The Today programme [Here's the clip, but you'll need to fast forward 13mins or so to get to the right bit] reports on an interesting experiment in high finance that will unfold over the next few years.
Robert Preston points out Alliance Boots and Sainsbury are similar companies charting very different courses. Boots succumbed to private equity bidders, while Sainsbury resisted.
Boots will load itself up with debt, sell off its properties and massively incentivise its managers, while Sainsbury does exactly the opposite. It says its properties will increase in value as its business improves.
“It will be gripping to see, whether Boots or Sainsbury eventually emerges as the stronger,” he says.
And so it will. But I think this experiment has already been conducted between Marks & Spencer (which resisted Philip Green in 2004) and Debenhams (which a consortium took private in December 2003).
In a sense the market won, as Marks emerged the stronger. But in a much more real sense private equity won, because it trousered Debenham’s assets and sold it back to the market. It’s stock market investors who’ve felt the pain since.
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