Qatari investment fund needs money for J Sainsbury PLC deal

A Qatari investment fund is seeking further funding for the grocer J Sainsbury PLC deal as regulators set a tight deadline.

Photo: Qatari investment fund needs money for J Sainsbury PLC deal

Shares in Sainsbury dropped 3.2 percent as analysts suggested that the deadline of Nov. 8, just two weeks away, will give Qatar-based Delta Two little time to organize the extra funding for its 10.6 billion pound (15.2 billion EUR; US$21.7 billion) preliminary offer.

"The market will be concerned there will be a last-minute glitch," said Pali International analyst Nick Bubb.

Delta Two, which is backed by the Qatar Investment Authority, said it is seeking 500 million pounds (720 million EUR; US$1 billion) of additional equity to bolster its 600 pence (8.61 EUR; US$12.30) per share offer for Britain's third-largest grocer.

The stock was trading at 565.5 pence (US$11.60; 8.11 EUR) on Friday. It has risen around 30 percent since early February, when a private equity consortium comprising CVC Capital Partners, Kohlberg Kravis Roberts & Co. Ltd. and Blackstone Group International Ltd. expressed interest in the grocer.

That deal fell apart after it was rejected by Sainsbury, and Delta Two steadily built up its stake in the grocer to 25 percent before revealing in July that it was in preliminary talks about a deal. The Sainsbury board agreed last month to open the company's books to Delta Two for limited due diligence.

The pair said Friday they had agreed to seek a deadline for a formal offer from the U.K. Takeover Panel to end the uncertainty for shareholders. If Delta Two decides not to make a bid by the deadline, it will be barred from making an offer for six months.

Delta Two must receive approval for its bid from the Sainsbury family, the second-biggest stakeholder with 18 percent, and from the Sainsbury pension fund trustees. Both were instrumental in blocking the earlier private equity approach.

European retailers including Sainsbury, William Morrison Supermarkets PLC and Carrefour SA have attracted strong interest from investors and private equity groups in recent months, largely due to their extensive property portfolios. Sainsbury owns around 8.6 billion pounds (US$17.6 billion; 12.8 billion EUR) worth of real estate.

However, Sainsbury, once Britain's No. 1 grocer, now lags well behind Tesco PLC and just behind Asda Group Ltd., a unit of Wal-Mart Stores Inc., in the national supermarket rankings. It has slid down the chart due to a prolonged price war and internal problems including stock shortages.

Chief Executive Justin King was recruited from Marks & Spencer Group PLC in 2004 to begin a recovery plan and has since has slashed jobs, cut a quarter of Sainsbury's headquarters positions, shut underperforming stores and improved the supply and distribution chain.

Delta Two has said it plans to invest 3.5 billion pounds (US$7.19; 5.02 EUR) over the next five years in Sainsbury to fund store expansion, store refurbishment and the development of Sainsbury's nonfood offerings.