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Are J Sainsbury plc And WM Morrison Supermarkets PLC Takeover Targets?

Sainsbury (LSE: SBRY) has been the subject of takeover speculation for years, ever since the Qatar investment fund — which owns 26% of the UK’s second largest retailer — bailed on a £10.6bn bid in 2007.

But will a bid emerge for the retail any time soon?

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There have been multiple opportunities for bidders to make an offer for the retailer over the past 12 months. For example, the company’s shares plunged to a 10-year low at the end of last year, but no bid was forthcoming.

Similarly, at several times last year Morrisons (LSE: MRW) was trading at a significant discount to the value of its assets. This offered a rare opportunity for an activist investor, or private equity buyout fund. Once again, no bids came. 

In reality, it’s unlikely that any bids will be made for the two retailers any time soon, which is actually good news for shareholders. 

You see, the history books are full of stories about mergers and acquisitions that have gone badly wrong. So many buyers are now extremely careful about the companies they acquire and when they acquire them.

With this in mind, it seems silly to suggest that a bidder will buy into an industry that is struggling to adapt to a rapidly changing business environment. Specifically, Sainsbury’s and Morrisons are struggling to fight back against the discounters Aldi and Lidl.

Great news for investors

For investors, this is great news. Unlike companies and funds that might want to buy out Morrisons and Sainsbury’s, investors don’t have to worry about the cost of debt that will be required to finance a deal. There’s also the issue of how to run the company after a deal has been done.

Instead, investors can buy shares in the companies at an attractive price and receive a share of profits, in the form of dividends, while turnarounds take place. 

And Morrisons’ turnaround is already starting to take hold. The group’s sales ticked higher by 0.4% during February according to data from Nielsen. Unfortunately, Sainsbury’s sales are still falling, down 1.6% during February according to Nielsen data. Still, when it comes to value Sainsbury’s ticks all the boxes.

The company is currently trading at a forward P/E of 10.8 and offers a dividend yield of 4.7%. Morrisons is currently trading at a forward P/E of 16.3, which seems expensive but the company does offer a market-beating dividend yield of 6.3%. 

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.