Sainsbury's watches for bidders' next move

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The Independent Online

The board of J Sainsbury is to put pressure on the private equity consortium stalking the supermarket group to flesh out its plans for a possible £10bn takeover offer amid speculation that rival bidders are also running their slide rules over the chain.

CVC, Blackstone and Kohlberg Kravis Roberts, the trio forced to confirm their intentions last week, are thought to be considering an offer pitched at 550p per share. But rumours that other bidders are also circling could thwart the consortium's plans because that would put a further rocket under Sainsbury's shares, which rose 14 per cent on Friday, lifting the group's value beyond their reach.

Texas Pacific Group has been linked to Sainsbury's, although a source close to the US buyout fund played down its interest late last week. A number of recent private equity approaches have failed because of early leaks, including ones to Signet and Kesa Electricals.

Weekend reports that the CVC consortium has approached Allan Leighton, the Royal Mail chairman, and Archie Norman, the former Energis chairman, about joining their bid are wide of the mark. If the consortium does make an approach it is likely to want Justin King, the chief executive who has transformed the business since joining in March 2004, to stay on. A successful bid would net Mr King more than £10m according to the terms of his contract.

Although the consortium's plans are still at a very early stage they are believed to centre on the potential for expanding Sainsbury's high-margin, non-food ranges. The consortium feels that greater space for clothing and homeware would help to drive the group's profits and maximise its returns.

Sainsbury's three-year recovery plan to increase sales by £2.5bn has factored in £700m from non-food sales. It would like to increase its non-food business further but cannot because its stores are too small.

The rating agency Fitch warned on Friday that the supermarket group's non-food offer was "only a small profit potential as Sainsbury's sales and profit density still lag competitors' and its non-food offer will not achieve the dynamics of peers give the size of existing outlets".

Fitch said that a leveraged bid that relied on unlocking property value from Sainsbury's 750-strong chain could "jeopardise" its recovery, adding: "The usual near-term exit for private equity players is less than clear."

Sainsbury's board, which is chaired by Sir Philip Hampson, will not want the uncertainty over its future to distract its employees, from Mr King down, from delivering the final and most crucial element of its recovery: the profits. If it does not hear back from the consortium, which is being advised by Goldman Sachs and Lazard, by the middle of the month it is likely to ask the Takeover Panel to intervene.

Later this month Lord Sainsbury, the former science minister, will regain control of his 13.8 per cent stake in the group for the first time since 1998. The exact date that the blind trust, which was set up when he joined the Government, will be wound up has not yet been decided.

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