Qatar ups Sainsbury stake to 25%

Qatar's royal family raised its stake in British supermarket group J Sainsbury Plc to 25% on Friday, fuelling expectations it could face its second takeover approach in as many months.

While Delta (Two), the secretive investment vehicle owned by the Gulf Arab state, did not reveal its reason for the £732 million ($1.4 billion) raid that raised its stake from 18%, Sainsbury shares rose to a record high on bid talk.

"This could be a precursor to a full bid," Citigroup said in a note which raised Britain's third largest supermarket chain to "hold" from "sell".

The swoop, which made Qatar Sainsbury's biggest shareholder, comes after Sainsbury family members in April blocked an £10.1 billion ($19.96 billion) approach from a private equity consortium led by CVC Capital Partners.

The rejection irritated some shareholders who had hoped for a windfall from the buyout and subsequent property selloff.

The CVC consortium focused on releasing value from Sainsbury's £8.6 billion ($16.9 billion) freehold property portfolio, triggering a revaluation of the real estate assets of rivals Carrefour, Tesco and WM Morrison.

The Sainsbury family and the supermarket group's management, who last month refused to stage a private equity-style property selloff, declined to comment on the stakebuilding.

Delta (Two) was not available for comment but analysts speculated real estate was also the focus for the Qatari group.

David Buik at financial bookmakers Cantor Index said Delta should be able to gain control of Sainsbury, particularly if it was able to bring onside another Sainsbury shareholder Robert Tchenguiz.

Property tycoon Tchenguiz, who holds a 5% stake, has already pressed management to unlock value from its property.

Sainsbury shares hit a record hit of 599 pence before easing back to trade around 591-1/2p, leading the FTSE blue chip index higher. Shares in Tesco and WM Morrison also gained over 1%.

Delta (Two) said it had paid 595 pence per share in its latest raid, a level close to the 600 pence per share the Sainsbury family - with an 18% stake - set as a minimum it would accept for a private equity bid.

The Qatari fund is run by Paul Taylor, a former employee of Tchenguiz who ran his Rotch investment vehicle. Analysts said it was probable he bought the shares from hedge funds who built stakes during private equity's stalking of the group.

Retailers' property ownership has divided the industry with some financial investors pushing for asset sales, while chief executives such as Tesco's Terry Leahy maintain owning a majority of its real estate is vital to a chain's success.

Sainsbury chief executive Justin King, who has led its turnaround in the past three years, said in May the majority of Sainsbury's investors shared the view the company did not need to sell property or be taken private in order to perform.

ABN AMRO analysts said in a note they did not believe "significant value" could be unlocked from Sainsbury's freehold without hindering the group's recovery and competitiveness.

Seymour Pierce said property disposal would require a cash outflow of over £800 million ($1.58 billion) in rents and capital spending each year for the next three years.

Sainsbury shares trade at around 30 times estimated earnings, expensive compared with major peers. Tesco trades at 18 times, Wal-Mart at 15.6 and Carrefour 19, according to Reuters Estimates.

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