April 11 (Bloomberg) -- CVC Capital Partners Ltd. scrapped a 10 billion-pound ($19.7 billion) offer for J Sainsbury Plc after the buyout firm was abandoned by its bidding partners and the grocery chain's founding family held out for more money.

The family, which owns about 18 percent of the retailer, wanted no less than 600 pence a share after CVC offered the board 582 pence, people with knowledge of the deal said. ``It became clear that the consortium would be unable to make a proposal'' that would succeed,'' CVC said in a statement.

A leveraged buyout would have been the U.K.'s biggest and the first in the benchmark FTSE 100 index. Blackstone Group LP and Texas Pacific Group pulled out of the bid group yesterday, and Kohlberg Kravis Roberts & Co. left on April 5. Acquiring Sainsbury would have given CVC 769 stores and about 7.5 billion pounds of property, which analysts said could be sold and leased back to fund the purchase.

``The price was going too far for them,'' Philip Dorgan, an analyst at Panmure Gordon in London, said of London-based CVC. ``They haven't come up with a price which would get a big enough share of the votes to win the day.''

Shares of the U.K.'s third-largest supermarket company slid to the lowest in a month. The people familiar with the discussion and the Sainsbury family's position declined to be named because the talks were confidential.

Sainsbury was founded in 1869 by John James and Mary Ann Sainsbury with a shop on London's Drury Lane. The family owned a stake of about 36 percent in the company in 2006 and has since reduced the holding.

Sainsbury's Statement

Selling to the private equity group would have risked damaging the company's ``strong balance sheet and a largely freehold property base,'' said John Sainsbury, former chief executive of the company, in an e-mailed statement. ``Eroding these attributes would make the company more vulnerable to competitive pressures.'' He said he didn't oppose a takeover of the company ``in principle.''

A spokesman for John Sainsbury's cousin David Sainsbury, a former minister in Prime Minister Tony Blair's government, didn't immediately return a call seeking comment.

Investors in publicly traded U.K. companies have resisted private-equity bids, holding out for better prices and prospects for longer-term growth rather than cash. Targets from record producer EMI Group Plc to broadcaster ITV Plc spurned buyouts.

Shares of Sainsbury fell 12.5 pence, or 2.3 percent, to close at 526 pence today. The stock has still surged 29 percent this year.

Tchenguiz, Property

The retailer said in a separate statement that the talks ended because ``pre-conditions'' relating to the buyout group's plan to finance a deal could not be met or revised. The company didn't give more detail on what those conditions were.

Sainsbury said its performance is ``improving'' and it intends to complete its recovery plan. Chief Executive Officer Justin King, 45, has clawed back market share from larger rival Tesco Plc by reducing prices, refurbishing stores and improving distribution to ensure better availability.

The family of Robert Tchenguiz, a U.K. billionaire property investor, today raised its stake in Sainsbury to 4.68 percent. Tchenguiz wants to offer the Sainsbury board the opportunity to sell its property to him and remain publicly traded rather than be acquired by a private equity group, the Daily Telegraph reported last month.

``Sainsbury can get past 582 pence under its own steam,'' said Steve Davies, an analyst at Numis Securities in London. To keep the share price rising, King will likely outline more plans to boost profit, including ``improving margins or potentially doing something creative with the property,'' Davies said.

Credit-Default Swaps

A spokesman for Robert Tchenguiz, who declined to be named, wouldn't comment. Sainsbury spokeswoman Pip Wood said the company would next talk to the market when it reports annual results May 16.

Ventures such as Tesco's pact with real-estate investment trust British Land Co. are an option, the analyst said.

Contracts based on the debt of Sainsbury fell 25,000 euros to 65,000 euros, according to Deutsche Bank AG. Credit-default swaps are based on corporate bonds and loans and used to speculate on a company's creditworthiness. A decrease indicates a company's debt is less risky.

Blackstone and Texas Pacific dropped out after a 562-pence bid was rejected, while KKR withdrew because of its involvement in an offer for U.K. retailer Alliance Boots Plc. London-based CVC manages a 6 billion-euro ($8.1 billion) fund.

U.K. labor unions have also opposed private equity takeovers because of fears for job and pension security. The T&G union, which represents 25,000 Sainsbury staff, today welcomed the failure of CVC's bid, saying it was ``well past its sell-by date.''

To contact the reporters on this story: Amy Wilson in London at awilson23@bloomberg.net; Edward Evans in London on at eevans3@bloomberg.net

Last Updated: April 11, 2007 13:08 EDT