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Thu 16 Aug 2007 05:04 PM

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Union opposition to Sainsbury deal

Britain's largest union urges board to block Qatar's bid, plans to take case to the competition regulator.

Britain's largest union urged the board of J. Sainsbury on Thursday to block a proposed 10.4 billion pound ($21 billion) bid for the supermarket group by a Qatar-based investment fund.

Unite's statement came as Sainsbury shares fell more than 4% to 521.5 pence, underperforming the DJ Stoxx index of European retailers on weakening expectations of a bid for the group from the Delta Two fund.

One former top 10 shareholder, who declined to be named, said it had recently sold down its stake in Britain's third-largest supermarket chain.

Pali International analyst Nick Bubb in a note gave the deal only a 40% chance of success and said that on that basis the shares were overvalued and should trade close to 500 pence.

Sainsbury's shares traded at nearly 30 times next year's estimated earnings compared with 17 times for market leader Tesco. Smaller rival Morrison Supermarkets, also a subject of waning bid talk, traded at 22 times.

Unite, formed from the Transport & General Workers and Amicus unions, mobilised its 20,000 members who work for Sainsbury in April this year against a private equity bid approach for the retailer.

That proposal crumbled in the face of opposition from the board and the Sainsbury family who hold an 18 percent stake.

"There is every fear Delta Two will act just like private equity," Unite's national organiser for food and agriculture, Brian Revell, said in a statement.

If the board backed the proposed bid, the union would take it up with Britain's Competition Commission, Revell said.

Qatar's Delta Two fund is in a stronger position than the private equity consortium because it already owns a quarter of Sainsbury shares. But it is struggling to gain the board's backing for its debt-heavy proposal due to the turbulence in the credit market, people familiar with the matter have said.

The banks behind the bid - Credit Suisse, Dresdner Bank and ABN AMRO - are negotiating an extension to financing deals as takeover talks drag on, another source told Reuters this week.

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