LONDON (Reuters) - Qatar’s state investment fund is considering a 10.4 billion pounds bid for J Sainsbury Plc (SBRY.L), with plans to invest 3.5 billion pounds in the British grocer, it said on Thursday.
Qatar’s Delta Two investment fund, which already holds a 25 percent stake in the third-biggest supermarket chain, has proposed paying 600 pence per share, excluding a 7.35p dividend, it said a statement.
Sainsbury also has debt of 1.5 billion pounds.
Delta Two, which is owned by the Gulf Arab state, said the deal would be funded by 4.6 billion pounds of equity and subordinated payment in kind (PIK) shares and notes and 6 billion pounds of debt.
“No decision has, however, been made regarding any possible offer and accordingly there can be no certainty that any offer for Sainsbury will be made,” Delta Two said.
Sainsbury was not immediately available for comment.
Sainsbury’s stock closed up 0.3 percent at 592 pence, valuing the company’s equity at around 10.3 billion pounds. The DJ Stoxx index of European retailers .SXRP was up 0.7 percent.
Based on 1.74 billion shares in issue, the deal would value the retailer at 10.4 billion pounds.
Credit default swaps on Sainsbury widened further after the bid details emerged, and were up 55 basis points on the day at 175 basis points by 5:10 p.m..
“We believe that this is probably the end game as far as the publicly owned Sainsbury is concerned,” Societe Generale said in a note. “We believe that Sainsbury will now accept the bid.”
SG said Delta Two, unlike traditional private equity bidders, does not need a quick exit strategy.
“Delta Two’s statement says that it supports the company’s operational strategy, and implies that this would be a strategic, long-term investment,” SG added in the note.
Delta Two said the 3.5 billion pounds investment over the next five years would be spent on new store expansion and refurbishment and the development of Sainsbury’s non-food offering.
Investors in the world’s top oil exporting region have been scouring the globe to invest windfall revenues from a tripling in international oil prices since 2001.
Delta Two’s approach comes just three months after the Sainsbury family blocked a 10.1 billion pound or 582p a share approach from a private equity consortium led by CVC Capital Partners Ltd CVC.UL.
However, industry sources said the family members, who hold around 18 percent of the business, would be concerned about what Delta Two intends for Sainsbury, especially given their support for Chief Executive Justin King’s growth strategy.
King has led the retailer in a turnaround in the three years since he took the job. In May, Sainsbury reported a 42 percent jump in annual profits and unveiled plans to create 3.5 billion pounds of new sales by 2010 as it expands into clothing.
“The family members think there is a lot of potential to come from the growth strategy and they would have considerable concerns about any plans that involved excessive gearing,” one industry source said.
The Daily Telegraph newspaper said on Thursday Delta Two wanted to open stores in the Middle East, Korea and China.
Sainsbury has nearly 800 stores across Britain with a market share of about 16 percent, employing around 153,000 people.
Additional reporting by Eleanor Wason, Mark Potter, Richard Barley and Jonathan Cable