Sainsbury’s, the UK’s third-largest retailer, has decided to open its books to long-time suitor Delta Two, the Qatar-backed hedge fund.
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Sainsbury’s and Delta Two have been locked in discussions since July when Delta Two tabled its first proposal to buy the retailer in a deal worth GBP10.6bn (US$21.3bn).
Delta Two has yet to table a firm bid for Sainsbury’s; up to now, talks between the two sides have foundered on the amount of debt in the fund’s proposal.
However, this morning (20 September), Sainsbury’s said it has allowed Delta Two to undertake a “limited period” of due diligence on the company after the fund upped the equity portion in its proposal.
Under Delta Two’s original plan, the fund indicated it would fund the bid with an investment of GBP4.6bn in equity and shares, with the balance coming from debt finance.
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By GlobalDataDelta Two has now increased the equity in its proposal; offering Sainsbury’s a further GBP850m in shares. The fund insisted these additional shares would be guaranteed by the Qatari government.
Sainsbury’s chairman Sir Philip Hampton said: “We have held extensive discussions with Delta Two over a number of weeks and believe that their revised proposal is comprehensive and, if it results in an offer, that offer would be recommendable to shareholders.”
The Sainsbury family, which holds an 18% stake in the retailer, is believed to have opposed Delta Two’s original plans due to the amount of debt finance in the initial proposal. UK trade unions have also been vocal in their opposition.
However, Delta Two reaffirmed its commitment to growing the Sainsbury’s business, insisting that the retailer’s lucrative property estate would stay under the company’s ownership, while pledging to invest further in the company should its takeover plans go through.
“Sainsbury’s would see significant investment and further expansion and would remain a robust competitor in its markets, even in challenging industry conditions,” the fund said.
Paul Taylor, strategic investment adviser to Delta Two, added: “We are very pleased to have reached agreement with the board on a process for due diligence. This is an important next step in our progressing a possible offer for the company.”
