Qataris in talks with Sainsbury's pension fund

The Qatari investment fund bidding £10.5bn for Sainsbury moved a step closer to its goal yesterday by agreeing to enter confidential discussions with the supermarket group's pension trustees.

Delta Two and the trustees will now exchange information and discuss the effects of the bid on funding for the pension fund.

Pensions experts believe that Delta Two will have to give £1bn to the pension fund to satisfy the trustees.

A formal offer from the Qataris is expected to come in the next three to four weeks, and is more likely to be accepted if the issue of the pension fund is resolved.

Paul Taylor, the strategic investment adviser to Delta Two, said the Qataris recognised the importance of ensuring that the Sainsbury's pension scheme is appropriately funded. "We have a high regard for the management and employees of Sainsbury's, and we and the trustees are keen to reach appropriate agreement in a timely manner, which is in the best interests of the company and the scheme members," he said.

John Adshead, chairman of the trustees, said they were clear that their responsibility "is to ensure that the benefits earned by members of the pension schemes are properly funded and secured".

After weeks of wrangling, the Sainsbury's board agreed last week to open the books to Delta Two, which has made a preliminary approach of 600p a share. Delta Two agreed to increase the proportion of equity in its offer by £850m to address the concerns of the board and family members, but the pension issue remained the main stumbling block.

The pensions expert John Ralfe said that a previous statement from the trustees indicating that a buyer would have to plug a £2bn to £3bn deficit "was just sabre-rattling" and £1bn was likely to satisfy the trustees. Alliance Boots's owners, Kohlberg Kravis Roberts, agreed a £1bn package to cover the company's schemes when it took over the high street chain. The Sainsbury scheme is a similar size. "This £1bn sets the benchmark for what the Sainsbury trustees might accept," Mr Ralfe said in a note for RBC Capital Markets.

He added that Delta Two would be keen to resolve the issue as quickly as possible in order for its bid to go ahead.

The fund, part of the Qatar Investment Authority headed by the Prime Minister of Qatar, Sheikh Hamad Bin Jasim Bin Jabor Al-Thani, also agreed to pay the interim dividend, of around 3p a share to investors.