The Qatar-backed investment fund Delta Two has scrapped its plan to buy UK retailer Sainsbury’s.
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In an announcement to the London Stock Exchange this morning (5 November), Delta Two blamed the global credit crunch, among other factors, for its decision to abort its planned GBP10.6bn (US$22.1bn) bid.
“Delta Two has concluded that it is not in the best interests of stakeholders to proceed with an offer for Sainsbury’s,” the fund said.
“Since Delta Two’s original proposal was submitted to the board of Sainsbury’s, the required funding and cost of capital has increased significantly, which has adversely affected the investment case. This reflected a combination of factors including the deterioration of credit markets.”
The fund, which is Sainsbury’s single largest shareholder with a 25% stake, first revealed its plans to buy the UK’s third-largest retailer in July.
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By GlobalDataMonths of talks led to Delta Two increasing the equity element of its proposed offer in a bid to assuage concerns from the Sainsbury’s board that a takeover would load too much debt on the company.
However, two weeks ago, Delta Two approached the Qatar government for extra funding – some GBP500m – to boost its offer in order to meet the demands of Sainsbury’s pension trustees and provide enough working capital to keep the business competitive.
The UK’s Takeover Panel then gave the fund a fortnight to table a formal bid, a deadline that would have expired on Thursday (8 November). However, amid the fallout from the global credit crunch, it seems the fund’s backers decided to abandon the bid.
Paul Taylor, who runs the Delta Two fund, said: “Delta Two has strict investment criteria and has approached this opportunity in a disciplined manner.
“Having given careful consideration to the additional funding requirement and its impact on prospective investment returns, Delta Two has regretfully concluded that a recommendation to proceed with the proposed transaction would not be in the best interests of stakeholders, and therefore such recommendation cannot be made.”
