Delta Strike

Qatar

Economic News

22 Jul 2010
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The Qatari investment body Delta Fund has made a $24bn bid for one of the United Kingdom's best known brand names, the supermarket chain Sainsbury.



In mid July, the first reports surfaced about the state owned investor's bid for the UK's third largest supermarket operator. Through its investment unit Delta Two, the fund is already the largest single shareholder, having raised its stake in the company from 7% to 25% in mid June, shading the Sainsbury family which has a 17% interest.



Much of the dealing has been done behind closed doors, with meetings between members of the Sainsbury family and Qatar's Prime Minister Sheikh Hamad bin Jassim al-Thani soon after news of the bid broke.



According to Paul Taylor, the head of London-based Three Delta, which is advising on the Sainsbury deal, the retailer meets all of the requirements to interest the fund.



"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," he said in late July.



Since the bid was announced there have been varying reports of shifting positions of Sainsbury shareholders.



On July 27, one of Sainsbury's leading shareholders, Robert Tchenguiz, reported he would back the sale if it was recommended by the company's board. This contradicted earlier media reports saying Tchenguiz, who has a 10% stake in the grocer, wanted to see Delta Two raise its offer.



There have been some queries over the Sainsbury bid, in particular over potential debt levels involved in the Delta Two offer.



Media reports said the Delta offer involves a $12.1bn debt burden, a figure Sainsbury executives suggest is too high.



British unions have also voiced fears for the future of their members should the retailer pass out of local hands. The national officer of Britain's General Union (GMB), Paul Maloney, said the UK was at risk of losing control of all its major retailers, something that could impact on employees.



"Every high street name will have been taken over by 2010," he said in an interview with British press on July 19. "We haven't even seen the fallout from the biggest takeover of a listed company with Boots and now here is another one."



At the beginning of August, the union, which represents many workers at Sainsbury, also demanded the British government investigate claims Delta would escape taxation if it took over the company, as the fund is registered on the tax haven of the Isle of Man.



However, Sheikh Hamad assured that he and Delta had the best interests of Sainsbury at heart. Since first taking up a stake in the company, Delta officials have repeatedly said they are more than satisfied with the Sainsbury management team and how the chain is run.



As the market was digesting news of Delta's bid for Sainsbury, news came on July 30 that Three Delta had acquired Care Principles, a UK firm that provides care, treatment and rehabilitation for adults with learning disabilities and behavioural disorders.



The $547m deal saw the Delta Fund build on its existing private health operations, with the Qatari outfit already owning Four Seasons Health Care and the Senad Group, which operates special needs schools. The Care Principles buyout took the Delta Funds' estimated health care assets to more than $6bn.



Should Delta, which is funded by the Qatar Investment Authority, gain control of Sainsbury, it will be getting a sound business concern. Sainsbury has property holdings estimated at around $17.5bn and has just announced tenth successive quarter of growth. In May, it reported a 42% jump in underlying profits, which came in at $771m.



The Delta bid is the second time in a matter of months that Sainsbury has attracted the attention of a suitor. In April, private equity firm CVC announced it had given up its $20.5bn bid for the retailer, having failed to gain the support of the Sainsbury family.



While there is no guarantee the Qatar bid will enjoy any greater success than that of CVC, few major shareholders have declared the sale out of bounds, and with a quarter of the company already in its hands, Delta has a god base from which to work from.

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