Sainsbury: making the deal taste better

The fate of FTSE-listed Sainsbury could well be decided this week, as its Qatari suitors decide whether to throw more money at the deal in an attempt to push it through.

Last Updated: 06 Nov 2012

Delta Two, the Qatar-backed fund looking to take the supermarket chain private, has got until next Thursday to submit a bid, after the Takeover Panel issued a ‘put up or shut up’ deadline. The problem is that it needs to find another £500m from somewhere to finance its offer, and barring any fortunate discoveries down the back of the sofa, that means it needs more money from its Qatari sponsors.

A few months ago, Delta Two would have had banks queuing up to lend it the extra £500m. But since they’ve had their fingers burned by the credit crunch, the blank cheques have been a lot less forthcoming. Now Delta Two needs to load more equity into its bid to have any hope of persuading the Sainsbury family to approve the deal.

Indeed, it’s been a pretty awful time to launch the UK’s biggest ever retail take-private. Not only have the global credit markets virtually ground to a halt, the retail sector has also nose-dived – even the biggest chains have taken a hammering thanks to the terrible UK weather.

And Sainsbury’s was never going to be the easiest target at the best of times. As well as trying to woo the family, Delta Two has also faced some serious opposition from some stroppy pension trustees, who are demanding several hundred million pounds to plug the pension deficit.

With the clock ticking, the Qatari-backed fund now has to decide rapidly whether to fold or go all in. Walking away from the deal would be a serious blow to pride (not to mention the bank balance, given the share price fall that would inevitably follow) – but paying well over the odds wouldn’t be good for their reputation either. If you dream of becoming an economic powerhouse, you don’t want to be known as a soft touch.

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