Morgan Stanley move fuels Sainsbury's bid speculation

J Sainsbury yesterday fuelled the takeover speculation supporting its shares by lining up the investment bank that helped Marks & Spencer to see off Philip Green's advances as a new financial adviser.

J Sainsbury yesterday fuelled the takeover speculation supporting its shares by lining up the investment bank that helped Marks & Spencer to see off Philip Green's advances as a new financial adviser.

The supermarket group is planning to appoint Morgan Stanley to advise it on defending itself against a potential bid, according to sources close to both parties. Sainsbury's is still just talking to the US bank, but one source said: "Like any sensible people they're making sure they've got their advisory teams in place." Sainsbury's has not worked with Morgan Stanley before, previously using Goldman Sachs for mergers and acquisitions advice. Its corporate brokers are UBS and ABN Amro. UBS also provides financial advice.

Speculation that the struggling supermarket chain could receive a takeover bid escalated yet again this week after it emerged that the duo who rescued Asda in the 1990s was freeing up time to pursue other interests. Archie Norman, the Conservative MP, has opted not to stand again for Parliament while Allan Leighton, the serial director, stepped down from the boards of lastminute.com, Dyson and Cannons this week.

Robin Whitehead, Sainsbury's former retail director, resigned from his current role as Somerfield's marketing and trading director on Thursday, further igniting takeover rumours. Iain McDonald, retail analyst at Numis Securities, said: "He could certainly be viewed by the market as the final piece in the jigsaw of a new Sainsbury's management team."

Numis Securities yesterday became the City's only stockbroking firm to recommend buying Sainsbury's stock. Sainsbury's shares jumped 6.75p before falling back to close 1.25p lower at 257.75p. Mr McDonald raised his target price from 240p to 300p despite admitting his move was "difficult to justify" according to conventional stock valuation methods.

"The more Justin King [Sainsbury's new chief executive] gets it wrong or struggles to get it right, the more likely it is that this company gets bid for," Mr McDonald said. While most analysts believe the Sainsbury family's controlling 38 per cent shareholding would put off most potential bidders, Mr McDonald argued that the family could rollover their shareholding into a new private vehicle. "They may take the view that forgoing dividends for the next few years might be the best thing for the long-term health of the business," he said.