Delta Two to make new bid for Sainsbury

Qatari fund aims to woo directors with new offer for supermarket group, which may be unveiled this week
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The Independent Online

Delta Two, the Qatari-backed investment fund, is set to make a revised bid for J Sainsbury, the supermarket group.

The new offer is expected to include a higher cash element than the original £10.6bn approach and could be made as early as this week.

The first bid, made more than six weeks ago by Delta Two, was comprised of £3.1bn in equity, £1.5bn in so-called payment-in-kind (PIK) notes and £6bn in debt. The revised offer is expected to include between £500m and £800m of additional cash. Sources close to the board of Sainsbury's have previously indicated that company directors were looking for an additional £1bn in cash.

Negotiations between Sainsbury's, chaired by Philip Hampton, and Delta Two, led by Paul Taylor, had reached an impasse, but a breakthrough was made during two meetings held last week.

A banker close to the talks said: "There is a good chance that a revised offer will be made in the next seven days. However, there are other factors, other than the amount of cash in the bid, that will decide the outcome of negotiations."

It is understood that the board of Sainsbury's will recommend an offer to shareholders only if it is satisfied that Delta Two has financing in place and can meet the concerns of the retailer's pension fund trustees. The company will give Delta Two limited access to its books once the Qatari-fund submits its revised bid.

The Office of Fair Trading could yet play the deciding role in the takeover. If Delta Two succeeds in its bid, the watchdog is expected to investigate whether the amount of debt on the supermarket's books compromises its competitive position in relation to rivals such as Tesco. No talks have yet taken place between the OFT and Delta Two over what level of debt might be deemed acceptable.

The recent credit crunch has intensified concerns over the amount of debt Delta Two has to raise to finance its takeover offer. In its original offer of 19 July, the fund submitted letters from three banks – ABN Amro, Credit Suisse and Dresdner Kleinwort – saying that the debt financing was in place. It has since reiterated that its backers remain committed to the bid, despite the travails of the international markets.

The Sainsbury family, who own 18 per cent of the company between them, are opposed to the Delta Two bid as it stands today. But they are prepared to back a deal at the right price if they are convinced the supermarket chain will not be burdened with excessive levels of debt. Their support is crucial for Delta Two as it needs the backing of investors holding 75 per cent of Sainsbury's shares for any offer to be successful.

Sainsbury's shares edged up on Friday to close at 554p, still well below the offer price of 600p per share but higher than its share price of 531p at the start of last week.

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