Sainsbury’s Asda merger makes Mayfair live worse for more after delivering £140m blow

Some of Mayfair’s best-known hedge funds were today delivered a blow by Sainsbury’s as shares in the supermarket giant surged following a weekend confirmation it was holding merger talks with rival Asda.

Along with other retailers, the grocer is one of Britain’s most heavily shorted stocks. Some 14.55 per cent of Sainsbury’s share capital is on loan to those betting against its fortunes, according to figures from IHS Markit.

The value of short positions fell by around £140m as Sainsbury’s share price rose 17 per cent this morning.

Investors were buoyed by the earmarking of £500m of cost-savings. But Britain’s competition regulator said this morning the deal is “likely to be subject to review”.

Read more: Competition watchdog gears up to scrutinise Sainsbury’s Asda merger

Marshall Wace, which has prospered over the last year betting against the likes of Carillion and Capita, has the largest position against Sainsbury’s, according to regulatory filings. One-time billionaire Crispin Odey and Pelham Capital also feature on the list of large Sainsbury’s shorts.

Short-selling involves institutions borrowing shares from other City players with the promise of returning them at a future date. The short-seller sells the shares on the open market in the hope the company’s stock falls in value. If it does, the short-seller can then buy the shares back at a lower price, return them to the owner and pocket a profit.

This means some short-sellers may have borrowed the stock at a higher price and could be still in profit.

Currently worth more than 315p each, Sainsbury’s shares today scaled heights last seen in August 2014.

Rivals Tesco and Morrisons saw their shares dive as markets open, before recovering. Tesco is currently 0.3 per cent lower with Morrisons 1.5 per cent up this lunch time.

“On the face of it there is a lot to be positive about the combination – in terms of reducing costs and improving margins, the deal makes a lot of sense,” said Markets.com chief market analyst Neil Wilson.

It’s definitely more of a Sainsbury’s takeover than a merger. In that sense, it looks like [Asda owner] Walmart has thrown in the towel in terms of its UK operations.

Read more: City analysts react to game-changing Sainsbury’s-Asda merger