Sainsbury opens books to Delta Two as share bid moves closer

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The Independent Online

The Qatari-backed investment fund circling J Sainsbury appears to have done enough to satisfy the founding family to take a bid seriously after the company confirmed yesterday that it would allow Delta Two access to its books.

The move comes after almost 10 weeks of talks amid fears that a deal would be scuppered due to the turmoil in the credit markets.

Delta Two, which already owns 25 per cent of the company's shares, is to begin due diligence on its £10.6bn indicative offer for Sainsbury's as early as next week and a deal is expected within a month. If it were to go ahead at 600p a share, the value of the chief executive Justin King's shares and options would be almost £12m.

In order to assuage the concerns of the board and family members, who were fiercely opposed to an earlier 582p-per-share approach from a consortium led by the private equity house CVC, Delta Two has agreed to increase the proportion of equity in its offer by £850m. There had been fears that a highly leveraged deal would weaken the supermarket's long-term competitiveness. The equity portion of the deal has been raised to £4.85bn from the £4.6bn in the original proposal tabled in July.

The fund, which is part of the Qatar Investment Authority headed by the Prime Minister of Qatar, Sheikh Hamad bin Jassem, has also raised the amount of ordinary and preference shares by £850m. Its bankers, Dresdner Kleinwort, ABN Amro and Credit Suisse, are providing debt facilities of £9.6bn. Delta Two will also pay the interim dividend of around 3p a share to investors.

Chairman Sir Philip Hampton said that, following extensive discussions, the company believes "the revised proposal is comprehensive, and if it results in an offer, that offer would be recommendable to shareholders". However, there are still a few sticking points, mainly over the issue of the future of Sainsbury's £4.5bn pension scheme.

A statement from the family said: "We have consistently made clear that the principles by which we would address any possible offer would be value and the best interests of the business, the latter importantly including the interests of the pension fund members. These principles remain unchanged."

Delta Two is currently seeking talks with the pension trustees. The fund made it clear yesterday that it wishes to retain the existing management team with Mr King at the helm, stating that it "has a high regard for the management and employees of Sainsbury's and attaches considerable importance to retaining their skills and expertise".

Mr King has not had any discussions with Delta Two about his position.

Delta Two also said it would appoint Tony Campbell, the former deputy chief executive of Asda, as non-executive chairman, replacing Sir Philip. It is understood that the family will have a say in the appointment of other board members.

The Qataris also made clear that Delta Two does not intend to split out the property assets and said it intends to invest £3.5bn to fund new store expansion.

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