An analyst has said a potential takeover of Nisa by the Co-op is a much better fit than a previously mooted deal with Sainsbury’s.
Global Data says Sainsbury’s investors should be relieved that The Co-op has entered into exclusive talks with Nisa, thereby avoiding a CMA investigation, Nisa shareholder’s discontent, and most importantly future disappointment from limited synergies.
A Co-op-Nisa partnership provides more benefits than a partnership with Sainsbury’s would have done due to complementary business models, supply chains, and customer requirements.
Speculation that Co-op would bid for Nisa had been circulating since Sainsbury’s pulled out of the potential acquisition amid fears of competition issues, stating that it would wait for the CMA’s verdict on Tesco-Booker before it moved forward. Co-op’s move may therefore seem like bad news for Sainsbury’s, according to Global Data, but given the lack of compatibility between Nisa and Sainsbury’s, it could be a lucky escape.
It asserts that Sainbury’s is a mid to high-end supermarket with a customer base that does not overlap as neatly with Nisa’s as Morrisons’ does with McColl’s, for example. In addition, Sainsbury’s lacks any vertical integration in its supply chain, so the added benefit of finding supply chain efficiencies, which exist for Tesco and Morrisons in their respective wholesale partnerships, does not exist.
The CMA is less likely to object, or take issue with, a deal between The Co-op and Nisa, as their combined market shares are lower than Sainsbury’s at 12%. Therefore, scale purchasing benefits are less market-influencing as they might be with a big four partnership. Also, given that they are both co-operatives, shareholders (many of whom are shopkeepers and Nisa needs 70% approval from them) in both companies are likely to prefer this option versus a potential Sainsbury’s acquisition.
Global Data says the reported figure of £140m as The Co-op’s upper limit for the acquisition is surprising as Sainsbury’s was reportedly offering £130m. It may signal Co-op’s desire to move as quickly as possible, or the greater number of synergies that could come from a Co-op-Nisa partnership over a Sainsbury’s-Nisa partnership. The Co-op acquiring Nisa could extend its geographical reach, improve sourcing for both parties, and cut costs within their systems creating the opportunity to offset inflation as it continues to affect suppliers and grocers.