Sainsbury’s and the Qatari-backed investment group Delta Two look to be getting closer to reaching agreement on the composition of the latter’s mooted GBP10.4m (US$21bn) takeover of the UK supermarket group.

Sainsbury chairman Sir Philip Hampton met Delta Two‘s Paul Taylor last week and they are now thought to be close to reaching agreement. The two sides are expected to meet again this week to thrash out the equity/debt balance of the bid, and some reports have predicted that those talks could see an indicative bid tabled this week.

Sainsbury’s wants Delta Two to put more equity into its bid and take on less debt because it believes such a large debt element would make the bid unacceptable to the company’s pension fund trustees and to the Office of Fair Trading. The Sainsbury family, which controls 18% of the company, has also objected to the substantial debt element in the Delta Two proposal.

While some sources have suggested Delta Two will put an additional GBP1bn of equity into the deal, the consensus view is that any rise in the equity element would be between GBP500m and GBP1bn.

As it stands, the proposal includes GBP3.1bn of “pure equity”, GBP500m in preference shares and GBP1bn in ‘payment in kind notes’, with the rest being made up of debt.

Press reports at the weekend suggesting that Sainsbury’s had issued a ‘put up or shut up’ ultimatum to Delta Two are also now thought to have been exaggerated. A Thomson Financial report, quoting sources close to the deal, said that while a ‘put up or shut up’ deadline may be an option at some later stage, no such demand had been made over the weekend.