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Battles brewing on the High Street

Disappointing sales over the Christmas and New Year period have made Marks & Spencer and Woolworths potential acquisition targets.

Apax has been looking at family and entertainment retailer Woolworths for the last couple of weeks. The revelation comes on the back of disappointing like-for-like sales over the holiday period, and Woolworths’ weak track record as one of the FTSE 350’s 10 worst performers of 2004.

Shares in Woolworths jumped sharply earlier this week as Apax confirmed that it was looking at the retailer, although there is no guarantee of a firm offer. The shares rose by 10p to 50.5p last Monday, valuing the retailer at £700m.

Apax, which has raised about €3bn towards its next fund, focuses on the retail and consumer sectors. It was involved in the buyout of New Look and its portfolio companies include LR International Cosmetics Marketing and CBR Group, which were acquired in Germany in 2004.

The firm is also an investor in UK-based DIY chain Focus, alongside Duke Street. The Wickes part of that business was sold in December to trade buyer Travis Perkins for £950m in cash. All in all, Apax has a portfolio of 15 retail and consumer companies.

Woolworths has struggled because supermarkets are broadening their product ranges and moving aggressively into its core areas. In the four weeks to January 1, like-for-like sales at Mainchain stores were flat against last year. This followed a weak November in which sales of entertainment products and toys were disappointing. Sales at the group’s big W unit declined by 8% and at MVC by 4.7%.

But sales were slightly better overall. Total group sales, including shares of joint ventures, rose by 2.9% in the 48 weeks to January 1. The entertainment, wholesale and publishing businesses were up by 31.6%, but the retail side was down by 3.3%. In the firm’s interim results, Woolworth’s first-half loss was cut to £32.9m from £34.9m. Net debt for the period came down to £131.8m from £142.9m.

M&S has also been having further problems. It said last month that annual profits would be less than analysts had expected, citing price cuts to remove excess stock after disappointing holiday sales.

The move prompted speculation that entrepreneur Philip Green might bid once again for the company. Self-made billionaire Green made a run for M&S last year, only to be rebuffed by the board, which brought in a new CEO.

J Sainsbury, the iconic supermarket chain, is also a potential takeover target, after notching up the first loss in its 136-year history. Permira, which had also looked to buy WH Smith, has been linked with the retailer.

Littlewoods might also emerge at the centre of a bidding contest. Two parties have approached the firm, one of which is Asda. Asda, which is part of Wal-Mart, might bid £500m for Littlewoods.