Delta said that since its original proposal was submitted to Sainsbury’s board, the required funding and cost of capital had increased significantly, adversely affecting the investment case.
“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 recommendation cannot be made,” said Paul Taylor, strategic investment adviser to Delta Two in relation to its investment in
It said this reflected a combination of factors including the deterioration of credit markets, which impacted on the terms of lending and other facilities available to Delta following the initial approach to the Sainsbury board and the arrangements for the future funding of the Sainsbury pension schemes necessary to gain the backing of the pension trustees.
Delta said that in dealing with the funding implications presented by these issues Delta’s objective has been to ensure that, following the acquisition, Sainsbury’s capital structure would enable it to remain a robust competitor in its markets, even in challenging industry conditions.
In a statement, Taylor maintained that Delta had approached the deal in a “disciplined manner” with a view to a deal meeting its “strict investment criteria”. He also insisted that Delta remains fully supportive of management’s operational strategy.
“We greatly appreciate the co-operation of the board and management of Sainsbury, and the constructive and collaborative nature of our discussions with both them and the trustees of the Sainsbury pension funds. Sainsbury is an excellent company with a strong management team, leading market position and strong long-term growth opportunities,” he said. (See Last Word for comment)
By Henry Gibbon