Qatar gets Sainsbury bid deadline

Some analysts have speculated that Qatar's takeover could make Sainsbury less competitive. (Getty Images)

Britain's takeover watchdog set a November 8 deadline for Qatari investment fund Delta Two to make a bid for Britain's J Sainsbury or walk away, as it emerged the fund is still seeking extra financing for its bid.

Sainsbury, which opened its books to Delta Two last month after receiving a bid proposal valuing it at 10.6 billion pounds ($21.7 billion), said on Friday the Qatari fund was seeking 500 million pounds of extra equity for its 600 pence-a-share offer.

The extra money will help cover uncertainty around issues such as competition from larger rival Tesco, the consumer spending outlook and a shortfall between what Delta Two planned to put into the company's pension deficit and a final compromise sum agreed by the trustees, a person close to the matter said.

Some analysts believe the buyout could weaken Sainsbury's competitiveness because greater indebtedness may hobble its response to aggressive price cutting by rivals like Tesco.

"Delta Two has entered into discussions with the Qatar Investment Authority to secure such funding," Sainsbury, Britain's third-biggest supermarket group, said in a statement.

"There can be no certainty that such funding will be forthcoming and, therefore, no certainty that an offer will be made."

Sainsbury shares closed down 3.2% at 565-1/2 pence, their lowest close in more than a month, amid jitters the deal might fall through at the last minute.

Good and bad

"It's good and bad news," said Pali International analyst Nick Bubb. "More equity would go down well with the family and with the board."

The Sainsbury family, owner of 18% of the company, torpedoed a 582-pence-a-share bid from private equity group CVC Capital Partners earlier this year.

"But it's a pretty late stage to be changing the funding and it does imply that maybe they have had some issues with debt financing. The other bad news is they haven't got much time to organise it."

Both Sainsbury and Delta Two, which owns around 25% of Sainsbury, declined to comment on the reasons for the extra funding requirement.

But one source close to the matter said Delta Two was optimistic of getting the extra 500 million pounds from the Qatar Investment Authority (QIA).

The source added that Delta Two had completed its examination of Sainsbury's books and that talks with the supermarket group's pension trustees were progressing well.

Sainsbury said in its statement Delta Two had agreed to a November 8 deadline, set by Britain's Takeover Panel, by which time it should make a firm offer or drop its takeover plans.

"Sainsbury's and Delta Two agree that it is in the best interests of shareholders and colleagues to bring this process to a conclusion as soon as practicable," the firm said.

Analysts expect a Qatari takeover to further slow weakening sales at Sainsbury stores, with the new owners seen shifting the focus to profits rather than drawing in customers with price cuts.

Tesco, Marks & Spencer and Waitrose will be the main beneficiaries, according to Bernstein Research analyst Christopher Hogbin.

Credit market conditions and Britain's economic growth prospects have both worsened since Delta Two announced it was in preliminary discussions with Sainsbury about a bid. - Reuters

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