Supermarket chain Sainsbury’s has grudgingly agreed to open its books to Delta Two, the Qatari state-owned fund looking to buy it – though only after its suitor agreed to increase the amount of equity in its £11bn offer.
There’s no point getting too excited. After all, the three private equity firms circling the company earlier this year also got to this stage, before being knocked back by a combination of some unfriendly pension trustees and the even less friendly Sainsbury family. Delta Two still needs to get both of these groups on board.
On the other hand, it’s doing its best to forestall their objections. The Sainsbury clan told the buyout boys that they wouldn’t get out of bed for less than 600p a share – which is where Delta Two has pitched its offer.
The Sainsburys were also unhappy about a highly leveraged deal, even before the credit crunch – so although the total price on offer is still the same, Delta Two has now reduced the amount of debt involved by £850m. It hopes this will ease the family’s fears that the business would be too busy worrying about paying off debts to concentrate on growth.
The Sainsburys have a point, of course. The chain is operating in a ferociously competitive market, and can’t afford to take its eye off the ball. Everyone in the sector is playing catch-up to Tesco, as it continues its quest for world domination. And even laggards like Morrisons are starting to come to the party – this week the chain said its first half profits were up 57%, as it finally gets its act together following the acquisition of Safeway.
There are external pressures, too. Today the Office of Fair Trading accused the five biggest chains of colluding to drive up the price of dairy products, suggesting they had conned consumers out of a whopping £270m. Theoretically, this could lead to a fine of up to 10% of turnover – which is not exactly ideal if you’re trying to service a £10bn debt package.
So it’s not surprising the family are being cautious. But the Qataris are now the proud owners of a 25% stake - admittedly they're not exactly short of cash (witness today's acquisition of a 20% stake in the LSE) but given the likely drop in the share price if this deal falls through, it seems unlikely that even they can afford to walk away now.
The courtship seems to have gone on for ever – but is Sainsbury’s finally about to give it up?