City analysts have played down the chances of a Sainsbury's takeover of Morrisons, after reports that the two grocers held exploratory merger talks earlier this year.
The Financial Times and Sky News reported on Monday that the talks ran from November 2025 to February, before Sainsbury's walked away.
Sainsbury's, the London-listed supermarket group, and Morrisons, which is owned by the US private equity firm Clayton, Dubilier & Rice (CD&R), have not commented.
Low odds near term
Deutsche Bank rates Sainsbury's a 'buy' with a 390p target, against a last close of 322.9p.
Analyst Benjamin Yokyong-Zoega called Sainsbury's a logical strategic buyer in UK grocery.
He said high debt at privately owned rivals and competition approval were the main hurdles to a near-term deal.
A merger would give CD&R a clean exit and give Sainsbury's more scale and a more integrated supply chain, in line with its Food First strategy.
Even so, the bank puts a low probability on a transaction in the near-term.
It said the timing may not be right, with the separation of Argos, Sainsbury's general merchandise arm, still under way, interest rates elevated and food inflation rising.
Competition arithmetic
Citi rates the shares 'neutral' with a 352p target and focused on market share.
It puts Sainsbury's at 15.6% and Morrisons at 8.4%, based on Worldpanel by Numerator data for the 12 months to 6 September.
That would give a combined share of about 24%, against 28.1% for Tesco and 11.5% for Asda.
The Competition and Markets Authority (CMA) blocked a Sainsbury's merger with Asda in 2019, when the combined group would have held about 30% of the market.
Citi said the market has shifted materially since then, with discounters such as Aldi and Lidl now taking about 19% of sales, up about five percentage points on 2019.
The FT reported that Sainsbury's would almost certainly have to sell stores to win approval for a deal with Morrisons.
Morrisons has carried heavy debt since CD&R bought it for £7 billion in 2021, and it most recently disclosed borrowings of £7.52 billion.
Sky News said industry sources expect another wave of grocery consolidation within three years.
It added that CD&R would stay open to a tie-up with one of Morrisons' larger competitors, and that Asda, also backed by private equity, could be active too.
People close to the situation did not rule out talks restarting, the FT said.
