Sainsbury's takeover bids overshadow group's performance

The two takeover attempts for Sainsbury’s this year have overshadowed a healthy trading performance from the group in a more challenging retail environment.

The two takeover attempts for Sainsbury’s this year have overshadowed a healthy trading performance from the group in a more challenging retail environment.

The company is in the third year of a revival plan led by chief executive Justin King after crashing to its first loss in 135 years of business in 2004.

Analysts believe Mr King and his team have done well to revive the business under the pressure of the high-profile approaches from Qatari-backed investment vehicle Delta Two and a CVC-led team of private equity firms.

Panmure Gordon’s Philip Dorgan said: “We believe that management has done well to keep the business moving forward, despite the distractions.”

This was shown in May, when the UK’s third biggest supermarket produced better than expected profits of £380m (€546m).

It also unveiled new targets to grow sales by £3.5bn (€5bn) within three years - the next step in its plan to make the supermarket chain “great again” – with another 30 supermarkets and 100 convenience stores in the pipeline by March 2010.

Although growth eased in June as the firm faced comparisons with last summer’s better weather and a World Cup sales boost, Sainsbury’s remains well positioned to weather any downturn in consumer spending following recent interest rate hikes, experts say.

Mr Dorgan believes Sainsbury’s will post interim profits of £240m (€345m) - nearly 30% higher – next week, and expects profits for the full-year to top £500m (€715m).

Numis Securities analyst Jose Marco, who praised the group’s “strong fundamentals”, is also upbeat over the chain’s prospects.

He said: “We still believe the food retail sector is one of the better places to be within retail, as it is less exposed to the vagaries of economic cycles, its companies are benefiting from price inflation, they have strong balance sheets and can still make significant inroads into non-food.”

For now, the group can move forward without takeover distractions for the first time since early February, when CVC’s interest emerged. Delta Two is barred from making a bid for six months, unless another party enters the fray or the supermarket’s board invites the approach.

The Qataris, who still retain a 25% stake, say they remain “fully supportive” of the board, and so could potentially block interest from a further bidder seeking to gain returns from a sale of part of the supermarket’s £8.6bn (€12.3bn) property estate.

Other hurdles which could be faced by other suitors involve securing the agreement of the company’s pension fund trustees – a feat beyond both would-be buyers this year.

Competition authorities could also take a dim view of a takeover deal heavily financed by debt as it could impair Sainsbury’s market position against its major rivals among the “Big Four” supermarkets.

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