Shares in British food retailer J Sainsbury Plc hit a one-month high yesterday after a report it had lined up advisers to help rebuff a possible takeover bid indicated that a hostile approach may be looming.
A report in yesterday's issue of the Wall Street Journal stated that Sainsbury had brought in banks Morgan Stanley and UBS to help mount a defence strategy, citing people familiar with the situation.
Dealers said the report highlighted that a potentially hostile takeover approach - most likely from a private equity firm - was looming.
A spokeswoman for Sainsbury said: "None of our relationships has changed".
She refused to comment on the WSJ report but said UBS had been its corporate and financial broker for a number of years and it had never retained Morgan Stanley.
By 0752 GMT Sainsbury shares were up 1.6 per cent at 263-1/4p, lifting its market value to about £5.2 billion.
The cost of five-year credit protection for Sainsbury rose three basis points to 143 basis points after the report, credit traders said, meaning it costs €143,000 a year to insure €10 million of Sainsbury debt against default.
"It adds fuel to the fire. We initially saw credit spread widening after (such speculation) was published the first time, but the stock didn't really react. Now the CDS market is watching the stock market," said a credit default swap (CDS) trader in London.
Speculation that Sainsbury could be a takeover target has picked up in recent weeks as the country's third biggest supermarket chain continues to lose ground to market leader Tesco and Wal-Mart's Asda.
Corporate financier George Magan said he had taken a preliminary look at the retailer but that reports he was planning a bid were exaggerated. Market speculation in the past was that private equity firms such as Kohlberg Kravis Roberts and Permira considered bids.
The WSJ report said some of the people Sainsbury had hired helped Marks & Spencer successfully defend itself against a takeover approach by entrepreneur Philip Green earlier this year. It said it was unclear what role Sainsbury's existing adviser, Goldman Sachs, would play in preparations for a bid. Reuters