The FTSE 100 was alive with strategic reviews and M&A on Wednesday as Sainsbury’s and Barratt Developments unveiled bold new measures to enhance future shareholder returns.
Unfortunately for current shareholders, the measures were not taken well by the market, and in the absence of any major economic developments, the two companies dragged London’s leading index lower.
The FTSE 100 was down 0.4% at the time of writing on Wednesday.
Interest rate concerns and Chinese stock market intervention took a back seat on Wednesday with equity investors focused on two material announcements by Sainsbury’s and Barratt Developments.
Operating in a highly competitive market, Sainsbury’s has announced a growth strategy that targets higher grocery and Argos sales by investing in technology and their Nectar card scheme.
Sainsbury’s shares fell 3.8%, with investors choosing to focus on the cost of achieving their goals rather than the end result.
“Sainsbury’s has unveiled bold plans to make the company bigger in the future. There is a clear vision to get customers to spend more money, attract more people to its stores, and drive more traffic to Argos’ website, stores and supermarket concessions. At the same time, Sainsbury’s wants to be a more efficient business and have staff and customers rate it more highly.
“However, its growth plan is not something that is guaranteed to work its magic. It’s not hard to dream up such a wish list to improve the company’s fortunes as it is basic business sense. Achieving the goal is another matter and it will cost money – something the market typically hates. Sainsbury’s shares fell on the news, but interestingly so did Tesco and Marks & Spencer as they face new competitive threats,” said Russ Mould, investment director at AJ Bell.
Sainsbury’s update weighed on the FTSE 100’s retailers with Tesco and Marks & Spencer falling, but also JD Sports and B&M.
Barratt Developments announced the creation of a major new force in UK housebuilding on Wednesday with the all-share offer for Redrow. The new group’s revenue will be in the region of £7.5bn, making it a significant player in the housebuilding industry.
Both Barratt Developments and Redrow released half-year results alongside the merger news pointing to a sharp slowdown in completions and revenue for the pair.
“The economic winds have not been kind to the housebuilders and Barratt Developments and Redrow clearly believe they’ll be stronger together, giving the new combined company much bigger clout to capitalise on the structural need for housing in the UK,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.
“Redrow’s board of directors intend to unanimously recommend that shareholders vote in favour of the £2.52 billion deal, which would give them 32.8% of the combined group, with Barratt shareholders holding 67.2%. The new group will be renamed as Barratt Redrow, and the move is expected to produce around £90 million in savings in operating costs of the two companies annually by the end of the third year.”
Taylor Wimpey investors were unphased by the news, and the stock rose 0.9%. Persimmon dipped 0.3%.