Strong Sales Boost Sainsbury Ahead of Possible Bid

British grocer J. Sainsbury topped fourth-quarter sales forecasts on Wednesday and said its recovery plan was ahead of target, which analysts said strengthened its hand ahead of a possible takeover bid.

Britain's third-biggest supermarket group said like-for-like sales excluding fuel rose 5.9% in the 12 weeks to March 24, boosted by higher prices and demand for ethical "Fairtrade" ranges and goods linked to the national "Red Nose" charity day.

Forecasts ranged from 4% to 5.5%, according to a Reuters poll of six analysts.

Private equity firms CVC, Kohlberg Kravis Roberts, Blackstone and Texas Pacific said last month they were working on a joint bid for Sainsbury which could lead to Europe's biggest ever leveraged buyout. They have been set an April 13 deadline by Britain's takeover watchdog.

Sainsbury Chief Executive Justin King declined to comment on the possible takeover offer but said the group's recovery was running ahead of plan.

"This should certainly put the company in a stronger position as far as negotiations with the VC (venture capitalist) consortium are concerned and shows that management have not been distracted by the process," said Numis analyst Steve Davies.

He expected to increase his full-year profit forecast by about 15 million pounds ($29.5 million) to 382 million and said any bid was likely to be pitched around 600 pence a share.

Sainsbury shares were up 0.4% at 553 pence, off an early high of 555-1/2 pence and valuing the business at 10.1 billion pounds ($19.8 billion).

Some analysts believe a bid is already priced into the shares, which have risen almost 70% over the past year, and questioned whether, particularly after a strong trading performance, Sainsbury's board would agree to a deal.

"The general market view has diluted of late to something nearer a weak hold," said Hargreaves Lansdown's Richard Hunter.

Bidders Line Up

The private equity approach has triggered a wave of takeover interest in Sainsbury, driving its shares to 8-1/2 year highs.

British retailer Marks & Spencer has said it will not rule out an offer for Sainsbury, while sources close with the matter have said buyout firms Bain Capital and Apollo are considering a bid and that Britain's second-biggest grocer, Wal Mart-owned Asda, is taking advice on whether it could bid without breaking competition rules.

Property investor Robert Tchenguiz has also built up a 4.5% stake in Sainsbury.

Sainsbury is attractive to would-be buyers because of its property assets, as well as its recovery potential as it fights back from a decade of underperformance during which it lost ground to Asda and market leader Tesco.

The group is entering the final year of its three-year recovery plan, which includes a target to grow sales by 2.5 billion pounds ($4.9 billion).

"We're definitely ahead of the curve ... for the 2.5 billion target," King told reporters on a conference call.