Qatari firm makes £12bn Sainsbury’s approach

Qatar-based investment vehicle Three Delta has confirmed its preliminary bid approach to Sainsbury’s, the UK supermarket chain that rejected a £10 billion offer from a private equity consortium in April. The company’s share price soared this morning.

Sainsbury’s, the UK’s third-largest grocer, looks set to become a takeover target for the second time this year, after confirming that it had received a preliminary approach from Delta Two, its largest shareholder. The news sent the share price to record levels.

Delta Two, the Sainsbury’s investment vehicle of Qatari government-backed investment fund Three Delta, is willing to offer 610 pence per share, according to the Financial Times, which would value the supermarket chain at around £12 billion.

Three Delta has confirmed the approach, saying that if made the offer would be funded by an investment of £4.6 billion in the form of equity and subordinated PIK shares and notes, and debt finance of £6 billion provided by a banking syndicate. The proposal would also involve an investment of some £3.5 billion over the next five years to fund new store expansion, further store refurbishment and the development of Sainsbury’s non-food offering.

Principal Paul Taylor said this morning: “Three Delta is focused on strategic, long-term investments in exceptional businesses, principally in the UK, which have strong incumbent management teams, leading market positions and long-term growth opportunities. All of these criteria are met by Sainsbury.”

Delta Two has amassed a 25 percent stake in Sainsbury’s following a series of share purchases in recent weeks. Most recently it paid £732 million, or 595 pence per share, to acquire an additional 7.1 percent in June.

Shortly afterwards property tycoon Robert Tchenguiz, who has close ties to Taylor, increased his holding from five percent to 11 percent. This fuelled speculation that Tchenguiz was working with Taylor, who used to be the chief executive of the former’s Rotch Property Group, but Tchenguiz has consistently denied any collaboration.

Earlier this year the supermarket chain rejected a 582 pence per share bid from a buyout consortium that was led by UK-based group CVC Capital Partners and also included US firms Blackstone, Kohlberg Kravis Roberts and TPG. However, the consortium fell apart when KKR decided to pull out on 5 April, with Blackstone and TPG following suit five days later. CVC abandoned its bid the following day.

The founding Sainsbury family, who control about 18 percent of the shares, strongly resisted the buyout firms’ approach. Some of the family expressed an unwillingness to sell at any price, while Lord Sainsbury of Turville, who owns a 7.75 percent stake, refused to consider any bid below 600 pence per share.

Sainsbury’s £8.6 billion real estate portfolio is believed to be the major attraction for the investment groups. After buying his initial five percent stake in April, Tchenguiz suggested that Sainsbury’s should separate its property assets from the main business, so the company could sell off the property holdings and return cash to shareholders. However the company has always insisted its property assets are too important to let go.

At 10:30 BST, Sainsbury’s shares were trading at 594.5 pence, up 8.50 or 1.45 percent. In early trading the share price rose as high as 600.99, a 52-week high.