Sainsbury takeover collapses

A Qatari fund has dropped plans for a 10.6 billion pound ($22.1 billion) bid for Britain's J Sainsbury, blaming worsening credit markets and the cost of winning support from the firm's pension trustees.

Traders said shares in Britain's third-biggest supermarket group were set to open down around 15% on Monday.

The Qatari fund, Delta Two, owns a 25% stake in Sainsbury. It was not immediately available to say whether it planned to hold onto the stake, but it said in a statement that it remained supportive of Sainsbury's operational strategy.

"It doesn't look like they're sellers. But it's hard to say what Tchenguiz's plans will be," said Pali International analyst Nick Bubb, referring to property magnate Robert Tchenguiz's approximate 10% interest in Sainsbury.

Bubb thought Sainsbury's shares would fall to between 475 pence and 500 pence following the collapse of the bid.

Delta Two's withdrawal marks the second failed bid for Sainsbury in less than seven months. Private equity firm CVC Capital Partners abandoned a takeover attempt in April, following opposition from the company's board and the Sainsbury family, which owns about 18% of the supermarket group.

Funding costs

The Sainsbury board opened its books to Delta Two after it proposed a 600 pence-a-share cash offer, which was above CVC's proposal of 582 pence. However, the Sainsbury family remained lukewarm about selling out at that price.

Delta Two said last month it needed an extra 500 million pounds of funding for its bids from its backer, the Qatar Investment Authority (QIA).

A source close to the matter told Reuters on Sunday there was no certainty the QIA would provide the extra money.

"Since Delta Two's original proposal was submitted to the board of Sainsbury, the required funding and cost of capital has increased significantly, which has adversely affected the investment case," the Qatari fund said in a statement.

"This reflected a combination of factors including the deterioration of credit markets... and the arrangements for the future funding of the Sainsbury pension schemes necessary to gain the backing of the Sainsbury pension trustees."

Sainsbury said in a separate statement it had a strong future as an independent company and repeated that first-half results, due on November 14, would show sales in line with analysts' expectations for the full year. Sainsbury shares closed at 555 pence on Friday.

Delta Two bought around 17% of its stake in Sainsbury in April. It did not disclose the price it paid, but market sources at the time said it was mostly at around 575 pence a share. It later paid around 595 pence a share to increase its stake to about 25%. (Reuters)