Delta Two starts Sainsbury talks

This is to flow over to p.23

Qatari investment fund Delta Two and the trustees of J Sainsbury‘s pension schemes have confirmed that they signed a non-disclosure agreement which will be followed by a two-way exchange of confidential information.

The parties said in a joint statement this week, that following the exchange of confidential information, they will be able to engage in detailed talks regarding the impact of the proposed deal on Sainsbury’s pension schemes and the appropriate terms of any agreement.

The statement confirmed that Delta Two has not yet made any pension proposal to the trustees or received any funding requirement proposal from them.

The two parties said today that assessing the potential impact on the Sainsbury pension schemes of the proposed acquisition of Sainsbury by Delta Two is “complex and requires careful consideration, by both Delta Two and the trustees, of a significant level of confidential information”.

“Such exchange is necessary so that Delta Two can formulate an appropriate pension proposal for the trustees’ consideration and, in turn, so that the trustees have the factual context in which properly to assess any pension proposal made by Delta Two,” they said.

The two parties said discussions will be confidential, with a further statement made in due course.

“Delta Two recognises the importance of ensuring that the Sainsbury’s pension schemes are appropriately funded and intends to work constructively with the trustees to reach a timely agreement on the appropriate level of funding for the schemes,” said Paul Taylor, strategic adviser to the fund.

He said Delta wants to reach an agreement in a timely manner with the trustees, but that the process is likely to take weeks rather than days.

John Adshead, chairman of the trustees, said their responsibility is “to ensure that the benefits earned by members of the pension schemes are properly funded and secured”.

Also in what can only be seen as a victory for Sir David Walker the sovereign fund has said: “Delta Two intends that Sainsbury’s will adopt the guidance in the Walker Report relating to enhanced reporting and disclosure standards for privately-owned companies”.

If due diligence leads to a takeover offer ABN AMRO, Credit Suisse and Dresdner Kleinwort will provide £9.6bn in debt financing for Qatari Sovereign Wealth Fund (SWF) Delta Two’s putative bid for UK retailer J Sainsbury,

The scale of sterling debt associated with the deal raised eyebrows among bankers in London, not least coming so soon after the failed effort to syndicate the LBO financing for Alliance Boots.

However the Sainsbury real estate portfolio (worth £8.5bn) means the debt is likely to be split into propco and opco facilities. The bidder has increased its planned equity slug from £4.6bn to £4.85bn with the £9.6bn debt figure made up of the balance of the acquisition financing plus an additional £3.5bn earmarked for further investment.

Sainsbury’s Ebitda is around £1bn, but sources insist that despite the total debt size the intended post acquisition structure would be relatively conservative with a small senior debt piece and a single-figures debt-to-ebitda multiple. “This is a long way from Alliance Boots,” said one source close to the deal.

The outcome of any bid is too close to call, and according to retail analysts, the Sainsbury board would back the current offer while pension trustees and the minority shareholding of the Sainsbury family are among those to be convinced to support a deal.

The Sainsbury deal comes at a time when underwriters are casting around for deals which will appeal to the relatively small pool of increasingly risk adverse debt investors.

SWF deals could achieve a more favourable response from investors relative to sponsor deal, given their tendency to larger equity inputs.