Sainsbury and the extra shares

Today's news sounds like a defensive move, with the £445 million share share placing/ bookbuilding, as at some point large shareholder (25% in 2007) Qatar Holdings may want to increase their stake, and takeover Sainsbury's on the cheap.

Sainsbury (J) PLC announces capital raising to accelerate growth plans:
• Capital raising of approximately £445 million via a placing of new shares (c. £255 million) and an offering of convertible bonds (c. £190 million)
• Proceeds used to accelerate Sainsbury's growth; 15 per cent space growth by March 2011
• Strong sales growth with like-for-like sales excluding fuel and VAT up 7.8 per cent 
• Agreement to acquire a further nine stores from the Co-Operative Group, in addition to the 24 stores already acquired
J Sainsbury plc ('Sainsbury's' or the 'Company') today announces its intention to raise around £445 million via a placing (the 'Placing') of new ordinary shares (the 'Placing Shares') and an issue of convertible bonds due 2014 (the 'Offering'). The proceeds from these capital raisings will be used to enable Sainsbury's to accelerate its 'From Recovery to Growth' strategy, increasing its planned gross space growth over the next two years (to March 2011) from 10 per cent to 15 per cent. Sainsbury's will add 2.5 million sq ft of additional selling space by March 2011.
Today Sainsbury's has also provided an update on trading for the 12 weeks to 13 June 2009, delivering strong like-for-like sales growth of 7.8 per cent (1) through increased customer numbers and continued growth in basket size; and announces the agreement to acquire nine stores from the Co-operative Group for a total consideration of £29 million. The acquisition of these stores is in addition to the 24 stores already acquired from the Co-operative Group for £83 million as announced on 4 March 2009.

Use of proceeds
Sainsbury's 'From Recovery to Growth' strategy, outlined in May 2007, has successfully delivered strong growth over the last two years. In the first quarter of 2009/10, Sainsbury's has delivered like-for-like sales growth, excluding fuel, of 7.8 per cent (1). Sainsbury's continues to demonstrate the success of its universal customer appeal through increasing levels of customer transactions, despite the current challenging economic conditions. Sainsbury's non-food offering has continued to deliver good growth with strong like-for-like sales growth supported by additional space.
Sainsbury's has the potential to accelerate its growth plans significantly by taking advantage of attractive opportunities within the current property market. In addition, Sainsbury's is seeing more favourable conditions for increasing space growth due to reduced build and fit-out costs. Recent new store openings and store extensions have delivered better than expected returns and Sainsbury's has exceeded its own plans to grow supermarket space. 
Sainsbury's has a strong balance sheet which is well supported by significant property assets and long-term debt.  The capital raising announced today will maintain this strong position and give the Company the financial flexibility to increase its capital expenditure to £2 billion over the two years to March 2011. This will enable Sainsbury's to open extra space in the next two years, adding at least 15 per cent gross space, equating to 2.5 million sq ft of additional selling area, by March 2011 through:
• Acquiring additional freehold and long leasehold sites to open more new stores and to further develop the pipeline of future store openings, taking advantage of current opportunities in the property market; 
• Speeding up the development of the store estate through extensions, driving additional non-food ranges and improving the food offering; and
• Continuing the accelerated growth plans for the convenience estate, as previously announced, with plans for fifty new stores in 2009/10 and a further 100 stores in 2010/11.
The additional new space will increase sales growth in 2010/11, but will be slightly dilutive to earnings in the current financial year and 2010/11 as a result of the incremental interest and pre-opening costs.

Placing of new shares
Sainsbury's intends to issue new ordinary shares of 28 4/7 pence each in the Company, to raise approximately £255 million, subject to the terms and conditions set out in the Appendix of the Placing Agreement, at a price (the 'Placing Price') to be determined at the close of the bookbuilding process (the 'Bookbuild') and announced shortly thereafter. 
Demand for the Placing Shares, together with the Placing Price, will be determined through the Bookbuild. The number of Placing Shares and the Placing Price will be decided at the close of the Bookbuild and an announcement will be made as soon as practicable thereafter. The Bookbuild will be launched immediately following this announcement by Morgan Stanley & Co. International plc ('Morgan Stanley') and UBS Limited ('UBS' or 'UBS Investment Bank'), who are acting as joint bookrunners (the 'Joint Bookrunners'). The timing for the close of the Bookbuild, pricing and allocations is at the absolute discretion of the Joint Bookrunners. 
The Placing Shares will, when issued, be credited as fully paid and will rank pari passu in all respects with the existing ordinary shares of Sainsbury's, including the right to receive all dividends and other distributions declared, made or, with the exception of the final dividend for the financial year to 21 March 2009, paid after the date of the issue. The existing ordinary shares trade without the right to Sainsbury's final dividend of 9.6p per share declared on 13 May 2009 (payable on 17 July 2009 to those shareholders on the register at the close of business on 22 May 2009) and, as a result, the Placing Shares will not carry the right to this dividend. Application will be made for the Placing Shares to be admitted to the Official List of the Financial Services Authority ('FSA'), and to be admitted to trading by the London Stock Exchange plc (the 'London Stock Exchange') on its main market for listed securities (together 'Admission'). Settlement of payment for the Placing Shares issued pursuant to the Placing, as well as Admission, is expected to take place on Monday, 22 June 2009 (the 'Closing Date'). The Placing is conditional on Admission becoming effective.
By choosing to participate in the Placing and by making an oral and legally binding offer to acquire Placing Shares, investors will be deemed to have read and understood this announcement in its entirety (including the Appendix) and to be making such offer on the terms and conditions contained herein and to be providing the representations, warranties and acknowledgements contained in the Appendix to this announcement.
Your attention is drawn to the detailed terms and conditions of the Placing described below.
Offering of convertible bonds
Sainsbury's also announces that it intends to make an offering of approximately £190 million principal amount of convertible bonds due 2014 (the 'Bonds') which will be convertible into new and/or existing ordinary shares of Sainsbury's. The issue of the Bonds is conditional on the Placing Shares having been issued. 
The Bonds will be convertible into fully paid new and/or existing ordinary shares of Sainsbury's ('Shares') and are expected to have a coupon in the range of 4.75-5.25% per annum payable semi-annually in equal instalments in arrear and an expected initial conversion price at a premium of 30-35% per cent above the Placing Price. The Bonds will be issued at 100% of their principal amount and, unless previously redeemed, converted or purchased and cancelled, will mature on the fifth anniversary of the issue of the Bonds in 2014. The Company will have the option to call the Bonds after the first three years, should the then volume weighted average price of the Shares be at least 130% of the then prevailing conversion price over a specified period. The final terms of the Bonds are expected to be announced today.
Settlement and delivery of the Bonds is expected to take place no later than 16 July 2009 (the 'Issue Date'). A further announcement will be made prior to admission to trading of the Bonds.
Applications will be made to the FSA in its capacity as competent authority (the 'United Kingdom Listing Authority') under the Financial Services and Markets Act 2000 ('FSMA') for the Bonds to be admitted to the Official List of the United Kingdom Listing Authority and to the London Stock Exchange for the Bonds to be admitted to trading on the London Stock Exchange's Professional Securities Market. Listing particulars will be prepared in connection with the listing of the Bonds.
Under the terms of the Offering, there will be a lock-up period ending 60 days after the Issue Date (both dates inclusive) on issuances or sales of shares or equity-linked securities by the Company, subject to certain customary exceptions.
Morgan Stanley and UBS are acting as Joint Bookrunners for the Placing and Morgan Stanley, UBS and Barclays Bank PLC ('Barclays Capital') are Joint Bookrunners for the Convertible Bond Offering.

Remember as 2008 has shown, shares and other financial assets can go up and down at frightening speed. Don't buy any, unless you know what you are doing and can afford to lose the money.