Marks & Spencer (M&S) has refused to rule out a bid for J Sainsbury after confirming it had considered "a possible combination" with the rival supermarket group.

Shares in M&S rose 7p to 682p after a statement from the company, which said it did not intend to make an offer for Sainsbury's "at this time". Sainsbury's shares rose 2.25 per cent, or 11.5p, in early trading to 522.75p.

M&S is free to make an offer for Sainsbury's, under the City Code on Takeovers and Mergers, in certain circumstances. These include a firm offer from CVC, KKR and Blackstone, the private equiry firms that declared their interest on February 2 after a report in The Times, or a bid from another party.

Stuart Rose, chief executive at M&S, said yesterday that he was considering a bid for Sainsbury's and that his shareholders should “watch this space”.

Mr Rose said that he was talking to customers about whether an offer for Sainsbury's was feasible and commented that the supermarket was not the kind of asset that came on the market very often.

He told delegates at the Retail Week conference in London: “[Sainsbury's] is effectively in play and shareholders would think I was an idiot if I didn’t consider it.”

On February 8, The Times reported that M&S was considering whether to make an approach after CVC, Kohlberg Kravis Roberts (KKR) and Blackstone acknowledged that they were in the preliminary stages of considering their own offer for the supermarket.

The M&S chief executive appeared to question the feasibility of a bid for Sainsbury's from private equity when he criticised the firms for “a degree of short-termism”.

He said that he wanted to leave M&S in better shape than when he arrived so that it would have “a place on the high street in 30 years’ time”.

Asked whether he thought that M&S itself would be better off in private hands, Mr Rose said: “Do I want to leave a business with the property sold off and crippled with debt? I don’t think that is the right thing to do.”

However, he said that private equity interest in public sector businesses had “made everybody sharper and they know if they don’t do something they could be looking at private equity from the wrong end. It can be a useful tool but not for M&S”.

On February 2, CVC, KKR and Blackstone said that they were in the “early stages of assessing a possible bid” for Sainsbury's, after a report in The Times that day. The City is waiting for the private equity firms to approach the Sainsbury's board, chaired by Sir Philip Hampton.

A move by M&S on Sainsbury's would offer obvious cost benefits, such as the merging of the supply chain and cost reductions from abandoning Sainsbury’s headquarters in Holborn. City analysts have pointed out that M&S’s low debt and high cash generation levels would mean that a £10 billion approach could be funded easily.

Difficulties could arise in merging two of the best-known high street brands. Such a union would face tough regulatory hurdles but might gain clearance by competition authorities because it would create a viable competitor to Tesco, the UK’s largest retailer.

Some analysts argue that such a bold move could derail the recovery plans of both M&S and J Sainsbury at a sensitive time. Shares in Sainsbury have surged by more than 100p since the private equity consortium expressed its interest.

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