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Costcutter owner Bestway buys Sainsbury's stake

FILE PHOTO: Branding is seen on a shopping trolley at a branch of the Sainsbury's supermarket in London

By James Davey

LONDON (Reuters) -Retail group Bestway, the owner of Costcutter, has built a 3.45% stake in Sainsbury's, describing the move as an investment and not a step towards making a takeover offer for Britain's second largest supermarket group.

Sainsbury's shares were up 4.5% on Friday, hitting their highest since April and leading gainers on the FTSE 100 index.

Bestway, which bills itself as the seventh largest family-owned business in the United Kingdom with turnover of about 4.5 billion pounds ($5.57 billion), said it intends to hold its shares and looks forward to supporting Sainsbury's executive management team.

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"Bestway Group confirms that it is not considering an offer for Sainsbury's," it said.

Bestway, which is owned by the Pervez, Choudrey and Sheikh families and led by Chief Executive Zameer Choudrey, said it may look to make further market purchases of Sainsbury's shares, subject to availability and price.

It took the unusual step of telling institutional shareholders in Sainsbury's interested in selling their shares to it to contact the broker Redburn.

Sainsbury's, which earlier this month reported better-than-expected Christmas trading, said it would engage with Bestway in line with its normal interactions with shareholders.

The 3.45% stake makes Bestway Sainsbury's sixth largest investor, Refinitiv Eikon data showed.

The Qatar Investment Authority (QIA) is the largest with 14.3%. The second largest is Vesa Equity Investment, the vehicle of Czech billionaire Daniel Kretinsky, which has 10%.

Vesa declined to comment on the development, while QIA, did not immediately respond to a request for comment.

Given Bestway's statement, under UK takeover rules it cannot make a bid for Sainsbury’s for six months unless another offer came in for the group.

John Moore, senior investment manager at RBC Brewin Dolphin, said Bestway's purchase was an indicator that UK shares are cheap.

"The fact that it has been the target of investment from another sector player could spark a flurry of activity around the company and more widely," he said.

Shares in market leader Tesco were up 0.7%.

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Bestway started as a chain of convenience stores in 1963 and has grown to become a diversified multinational business with interests across the wholesale, pharmacy, real estate, cement and banking sectors. It employs over 28,000 across the UK, Pakistan and the Middle East.

Russ Mould, investment director at AJ Bell, said there was some logic in putting the two companies together, pointing to the success of Tesco's 2018 purchase of wholesaler Booker.

“While Bestway says it won’t make a full takeover bid now, the fact it has openly stated it wants to buy more shares implies it wants a seat at the table," said Mould, suggesting it could push for a position on the board.

“A notable stake in the business also suggests it is serious about wanting to collaborate."

In 2021, two of Britain's biggest supermarket groups fell into private hands. Asda was purchased by brothers Mohsin and Zuber Issa and private equity company TDR Capital for an enterprise value of 6.8 billion pounds, while Morrisons was bought by U.S. private equity firm Clayton, Dubilier & Rice for 7 billion pounds.

Sainsbury's proposed 7.3 billion pounds takeover of Asda was blocked by Britain's competition regulator in 2019.

Shares in Sainsbury's closed on Thursday at 239.4 pence, valuing the business at 5.6 billion pounds. The stock is up over 14% over the last month.

($1 = 0.8082 pounds)

(Reporting by James Davey; editing by William James, Jason Neely and Jane Merriman)