On the property portfolio the argument is that Sainsbury's is sitting on freehold values not properly reflected in the share price. By leveraging property, sufficient cash will be generated to pay down the debts and the business will more than cope with the rental liabilities. In the marketplace there is a real appetite for freehold retail assets and there is no doubting the attractiveness of the Sainsbury's brand. On paper it looks very attractive.
It will not be easy to value the Sainsbury's portfolio and the real underlying asset value depends on the status of both national and local competition rules.
Here is where the evolution of the competition rules will be so important. On a national basis will the authorities ever allow the four national players to become three and/or will the local rules be shaped in such a way as to manage the transfer of assets between the key players? Such an outcome would potentially strengthen the quality and value of the Sainsbury's portfolio.
With regard to non-food's expansion it is well known the Sainsbury's portfolio is weak in terms of store size. It is unrealistic for Sainsbury's to expand non-foods business from its existing footprint without compromising food. Without a substantial increase in the average store footprints it will be extremely difficult to achieve the necessary critical mass to compete in core non-food. One of the factors that may help them achieve this goal is a relaxation of planning constraints.
All these issues and more will be in the minds of the potential bidders as they assess a concrete bid. However the existing management within a public company structure are perfectly capable of dealing with these issues for themselves. The challenge for JS is to focus on the delivery of sustainable profit growth while not becoming distracted by the speculation. The next few weeks will determine if the management and shareholders of Sainsbury's have the confidence to do just that.