Qatari group closes in on J Sainsbury

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The Independent Online

Qatar's six-week pursuit of J Sainsbury moved a step closer to fruition yesterday after Delta Two, the investment firm backed by the emirate, agreed to increase the cash component of its £10.6bn bid for the supermarket giant.

The exact amount has yet to be determined, but it is understood that Paul Taylor, the head of Delta Two, agreed in principle to up the equity piece of the price tag by something that could be in the region of £500m. Mr Taylor made clear his willingness to dig deeper in a meeting this week with Sir Philip Hampton, the chairman of the supermarket giant's board.

The move could potentially remove one of the major sticking points in the talks. The Sainsbury family and the board are understood to harbour concerns about the level of debt first proposed by Delta Two. Under the original proposal, the Qataris offered to pay £3.1bn in cash, £6bn in debt, and £1.5bn in PIK, or "payment in kind", notes – instruments that will be difficult to secure, given the recent meltdown in the credit markets.

The meeting between Mr Taylor and Sir Philip, which took place on Tuesday, is the latest in a series of face-to-face discussions. Aside from financing concerns, it is understood that Mr Taylor explained the key elements of Delta Two's business plan for Sainsbury and his intended approach to grow the company.

Sainsbury's shares have fallen since the offer was made public in July, dragged down by the August market sell-off. Its shares closed yesterday at 540p, below the 600p offered by Delta Two.

The meltdown in the credit markets has increased scepticism in the City that Delta Two will be able to raise the necessary financing. An increase of the equity portion will make it easier for the firm to raise the remaining funds, and ease the company's fears that a debt-funded takeover could saddle it with high debt payments that will hamstring its ability to compete against rivals.

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