Three Delta drops Sainsbury’s bid after Qatari talks(3)

Three Delta has withdrawn its bid for Sainsbury’s citing the problems in the credit markets and an equity increase demanded by the UK supermarket’s pension trustees.

Investment firm Three Delta has called off its bid for UK supermarket Sainsbury’s after its backer sovereign fund the Qatari Investment Authority decided against funding a £500 million (€720 million; $1 billion) equity increase.

Still public

The firm was expected to announce its decision to bid on Friday of this week.

Paul Taylor, the principal of Three Delta, said in a statement: “Having given careful consideration to the additional funding requirement and its impact on prospective investment returns, Delta Two has regretfully concluded that a recommendation to proceed with the proposed transaction would not be in the best interests of stakeholders, and therefore such a recommendation cannot be made.”

On Friday 26 October Three Delta’s acquisition vehicle Delta Two and the UK supermarket board said it had returned to its backers the Qatari Investment Authority to find an extra £500 million of equity, to increase its bid to £5.35 billion equity and £9.6 billion debt.

The firm had initially looked to bid with £3.6 billion of equity at the pre-due diligence stage, while still paying £6.00 per share for the company.

The change in the cost of capital due to the deterioration of the credit markets had affected the investment case, the firm said in a statement. The extra funding needed to appease the Sainsbury pension trustees was also a reason to withdraw its bid, it said.

Sainsbury’s shares had fallen 19.05 percent in value to £4.49 per share at 10.14 am GMT. Delta Two continues to hold a 25 percent stake in the company.

A city source said: “Given the change in the share price it is a possibility that it bids again in six months as the firm believes the business is worth more than £6.00 per share.”

The withdrawn bid comes in the same year a CVC Capital Partners-led consortium also pulled out of talks in April with the supermarket. The consortium included US firms Blackstone, Kohlberg Kravis Roberts and TPG.