Finsbury Food shares fly on bid talk

By This Is Money
Updated: 05:11 EDT, 3 June 2009

Finsbury Food today confirmed it had received an early-stage takeover approach, sending shares in the cake and bakery chain soaring.

Use your loaf: The baker does not expect to bid to be successful.

Finsbury - the UK's second biggest cake firm - said the bid interest was 'exploratory in nature' and stressed 'considerable doubt' over any firm offer.

But shares in the group soared 23% regardless as investors cheered the possibility of a sale.

Finsbury shares have risen sharply in recent days in a sign of mounting speculation over a potential deal. However, today's statement from the company suggested a takeover proposal was some way off.

'The directors believe that there is considerable doubt that an offer will be forthcoming from this party,' said the group.

Finsbury owns a range of businesses, including its founding subsidiary Memory Lane Cakes and company headquarters in Cardiff, Hamilton-based Lightbody, Campbells Cakes in Glasgow and bread business Nicholas & Harris in Salisbury, Wiltshire.

But the company has been under pressure on the stock market this year after warning over profits as promotional activity and the high cost of raw materials has hit margins.

Finsbury said last November that operating margins for the year to the end of June were likely to be down by between 1% and 2%.

It reported a 45% plunge in underlying pre-tax profits for the six months to the end of December, although it hopes for a better second half, with the Easter hot cross bun trade expected to have boosted earnings and cost cutting benefits starting to come through.

The group has been hit hard by soaring commodity costs and said at the end of last year it was struggling to recoup these.

Finsbury has sought to claw back some of the cost increases with customers such as Sainsbury's and Asda, while also seeking to offset higher prices with better internal efficiency and by embarking on a promotional campaign to stress its value-for-money offering.