American hedge fund controlled by billionaire surfer forced to give up on huge bet against Sainsbury’s after grocer’s shares soar
An American hedge fund controlled by a billionaire surfer was forced to give up on its huge bet against Sainsbury’s after the grocer’s shares soared last week.
Third Point – controlled by Dan Loeb, a Wall Street hedge fund manager, surfer and philanthropist – was stung when Sainsbury’s shares soared 15 per cent to £3.40.
The rise was driven by rumours that US private equity buccaneer Apollo was weighing a takeover bid of more than £10billion.
Too hot to handle: Third Point was stung when Sainsbury’s shares soared 15 per cent to £3.40
Data shows Third Point closed out its entire ‘short’ position in Sainsbury’s, meaning it is no longer betting on the share price falling.
It was one of several hedge funds that scaled back their bets.
Short-sellers borrow shares from other investors for a fee, and sell them on the open market. They then hope to buy back the stock at a lower price and pocket the difference when they return the shares to the original owner.
According to the Short-tracker website, 4.1 per cent of Sainsbury’s shares are on loan to short-sellers.
Earlier this year, Sainsbury’s was one of the top five most shorted companies in the London market with 9.5 per cent of the company’s shares on loan to short-sellers.
There are now only four investment firms that have disclosed short positions in Sainsbury’s. They include BlackRock and Marshall Wace, the hedge fund set up by tycoon Sir Paul Marshall, a Brexit-supporter and financial backer of Right-wing news channel GB News.
According to Short-tracker, Third Point – which manages over £10billion – closed its short position in Sainsbury’s on August 23, the same day its shares rocketed.
Loeb set up Third Point in 1995 with $3million following a career on Wall Street. The fund’s core investment strategy is ‘activism’ – buying stakes in troubled firms, replacing inefficient management teams and trying to return the businesses to success.
The fund – named after a surf beach in California near where Loeb grew up – has previously taken sizeable stakes in Yahoo, Sotheby’s and Nestle.
City sources said it’s unclear whether Third Point began closing its short position before rumours began circulating last weekend about Apollo’s interest in buying Sainsbury’s. Short-sellers are estimated to have lost £62million from Monday’s share price spike.
Brokers said some of the short-sellers may have ‘covered’ their bets by buying back shares in the market, which would have contributed to Sainsbury’s share price surge on Monday.
However, that may have been a premature move, as sources close to Apollo poured cold water on reports it is interested in buying Sainsbury’s, saying the buyout firm is still focusing on its talks with the SoftBank-backed Fortress consortium over its £9.5billion takeover tussle for Morrisons.
But speculation has been mounting about a potential bid for Sainsbury’s ever since Daniel Kretinsky, a secretive investor known as the ‘Czech Sphinx’, began building a large shareholding in the firm. He owns almost 10 per cent of it, which equates to around £100million.
Sainsbury’s has received several takeover approaches in the past, including one from the Qatar Investment Authority. It once held a 30 per cent stake, but that is now down to half that figure.
By Friday, Sainsbury’s had given up some of Monday’s huge gains and closed at £3.10.
GROCER IN TALKS TO SELL ITS BANKING ARM
Sainsbury’s is in advanced talks to sell its banking arm for £200million to private equity firm Centerbridge Partners.
The US firm is in advanced discussions with Sainsbury’s about purchasing the bank and a day may be announced in the coming weeks, according to Sky News.
Sainsbury’s said last year that it was talking to potential acquirers of the bank following reports of takeover interest but stressed talks may not lead to a deal.
Sainsbury’s Bank has around two million customers, selling products such as home insurance and credit cards.
It pulled out of the mortgage market in 2019, reflecting the intense price competition in the sector as a long period of ultra-low interest rates hurts the profitability of smaller lenders.
Tesco Bank has also pulled out of of the mortgage market, selling its book of customers, and recently said it was quiting the current account market.
Sainsbury’s has said it will not pump any more money into its banking arm. Centrebridge has experience of the financing sector having previously invested in medium-sized lender Aldermore. It also tried to buy Williams & Glyn from Royal Bank of Scotland, now called NatWest Group, but that deal failed.
The private equity firm could use the purchase from Sainsbury’s as a springboard to buying up other banking operations in the UK. A spokesman for Sainsbury’s declined to comment.
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