Sainsbury's share price edges up as it sells pharmacy business for £125m

Kasmira Jefford
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The deal will net Sainsbury's £125m (Source: Getty)

Shares in Sainsbury's rose 0.7 per cent to 261.1p after it announced a deal with the German owner of UK chain LloydsPharmacy to sell its pharmacy business for £125m.

Read more: Growth at Co-op for the first time in a year as Tesco and Asda decline yet again

As part of the deal, Celesio’s LloydsPharmacy will buy 281 pharmacies, most of which are in Sainsbury’s stores, the two companies revealed this morning.

The pharmacies will be then rebranded as LloydsPharmacy, and as many as 2,500 of their workers will be transferred to the new owner.

In addition, Sainsbury’s will receive commercial annual rent payments from LloydsPharmacy for each location.

Sainsbury’s chief executive Mike Coupe said: “Pharmacy services are incredibly popular with Sainsbury’s customers and we are delighted to be teaming up with LloydsPharmacy to develop our offer.

“Working together with a specialist operator like LloydsPharmacy will enable us to grow and extend our pharmacy services to customers, whilse realising value for shareholders today from the pharmacy business we have grown organically over the last 20 years.”

The deal will help Sainsbury’s further bolster its balance sheet as British supermarkets grapple with rising competition, weaker footfall in their larger stores and record food deflation.

29 July 2015 @ 10:30amSainsbury (J) (SBRY)

However Shore Capital analyst Clive Black said the deal came as a surprise. He told City A.M:

"From the company’s perspective it will hopefully enhance the customer offer. The cash flow and ongoing rental stream will presumably be moderately EPS enhancing. However, Sainsbury is quite aggressively raising cash through this measure and the hybrid bond, which appears relatively expensive money to our minds, which we’re trying to get our heads around.

"Sainsbury is perhaps bunkering down for tougher times ahead?"

Data from Kantar Worldpanel yesterday revealed that Sainsbury’s has overtaken Asda as the UK’s second largest supermarket with a market share of 16.5 percent, although its sales fell 0.3 per cent in the period.

Cormac Tobin, Managing Director of LloydsPharmacy and Celesio UK, said:
"Sainsbury’s is a fantastic fit for LloydsPharmacy. We are both passionate about excellent customer service and making a positive impact on the communities we serve. Health is our focus and over recent years we have developed a range of services to make it easier for people to manage their health, such as our pain management and skin health services, and we look forward to making these even more accessible via the Sainsbury’s network.”

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