Nisa's proposed takeover by J Sainsbury’s (LON:SBRY) is not facing a potential setback after McColl's said it was retendering its £2bn supply deal with the retailer, according to a personal familiar with the situation.
The Telegraph had reported that McColl's decision to retender its supply deal with Nisa could mean Sainsbury’s planned £130mln takeover could be scuppered.
The newspaper had suggested that Sainsbury's may rethink its deal since McColl’s provides almost two fifths of Nisa’s revenues through a five-year supply deal.
However, a source told Proactive Investors: “Sainsbury’s proposal is not conditional on Nisa retaining the McColls contract.”
"The latest McColl's contract was awarded to Nisa, following a competitive tender process, in November 2016 and the roll out of that contract is going extremely well."
The source also said Nisa has several contracts with McColl's that are not affected by the retendering, including a deal to supply the 298 stores it acquired from the Co-op in December until 2020.
McColl's CEO says wholesale retender has received five submissions
Jonathan Miller, chief executive of McColl’s, told The Telegraph the company has received more than five first round submissions to its wholesale retender.
He declined to comment on speculation that McColl’s could become a takeover target as the so-called 'Big Four' supermarkets try to enter the convenience market. Tesco plc (LON:TSCO) has proposed a £3.7bn acquisition of Booker Group (LON:BOK), which owns Londis and Budgens, to branch away from its core food division amid fierce supermarket competition.
Asked by the newspaper if McColl's was open to takeover offers, Miller said he was focused on running the group as an independent business. However, he said Sainsbury's interest in the convenience sector was “no surprise”.
McColl's first half profit falls after acquisition of Co-op stores
McColl’s revealed the move as it reported a 45% decline in profit before tax to £4.5mln in the first half from £8,2mln the same period a year ago, reflecting a £2.3mln exceptional cost related to its acquisition of Co-op stores.
The addition of the Co-op stores, however, boosted revenues, which rose to 7.6% to £504.8mln from £469.2mln. Sunny weather also meant more customers bought food and alcohol.
The integration of the Co-op stores has been completed. It has raised the McColl’s proportion of its business in convenience to 80%.
Co-op seen as potential bidder of McColl's
Co-op has been touted a potential bidder for the McColl’s wholesale contract since it has already started a trial of selling its own-brand products in McColl’s stores.
Shares in McColl’s dipped 0.08% to 207.0p in afternoon trading.
Numis repeated a ‘buy’ rating and target price of 250p, saying McColl’s delivered “solid” interims.
“Product and format initiatives should underpin a sustained improvement in sales momentum, while the margin outlook is supported by mix changes, the supply re-tendering process and acquisition synergies,” it said.
“The shares have proved to be resilient in recent months but in our view continue to offer good value at 9.5x price-earnings ratio/ 5.3% dividend yield to calendar year 2018.”