Brandes sell-off gives Sainsbury's suitors hope

J Sainsbury's third-biggest shareholder, Brandes Investment Partners, sold more than 10 per cent of its holding two days before news of a potential £10bn bid emerged, giving the supermarket chain's private-equity suitors hope that the market might view the company as fully valued.

Sainsbury's shares closed up 2.5p to 509.5p yesterday. Reports suggested Cinven and Texas Pacific Group were planning a rival private-equity bid to the possible offer, announced on Friday, from a CVC, Kohlberg Kravis Roberts and Blackstone-backed consortium.

Brandes, the San Diego-based value investor, received 433p a share for the 20 million it sold last Wednesday. Brandes, which has made a killing from building big positions in undervalued UK retailers and played a key role in Sir Philip Green's tilt at Marks & Spencer, made £88m from the sale. It owns 9.77 per cent of Sainsbury's stock, down from 10.99 per cent, according to a regulatory filing released yesterday.

The fact that Brandes saw value in Sainsbury's shares way below their current level will have boosted morale at the CVC consortium, which was alarmed by the spurt in its target's valuation after it was forced to reveal its hand.

Several retail analysts queried the potential for a bid much above 500p per share. "Funding must come cheaper or the consortium's view on Sainsbury's recovery potential must be far rosier if a materially higher bid is to be tabled," analysts at Merrill Lynch wrote.

Analysts at Lehman Brothers saida potential £600m pension liability could prove a deal killer, adding: "We do not ultimately believe a deal will be completed at these inflated share price levels."

Trade unions, meanwhile, went on the offensive against a possible private-equity takeover. The T&G union, which has 25,000 members working for Sainsbury's, said private equity would "do nothing" for the firm. Brian Revell, the union's national organiser for food and agriculture, said: "We are very concerned at the prospect of private equity taking over Sainsbury's. Private equity does not create wealth, they extract it for shareholders."

The GMB, which is campaigning to get the Chancellor to rewrite legislation that grants tax relief on loans used by venture capitalists, said the possible bid "makes this change of policy more urgent".