UK/QATAR - Qatari-backed investment fund Delta (Two) has confirmed it has terminated its takeover bid for supermarket chain J Sainsbury citing market turmoil and concerns over pension fund demands (Updated with comments from Punter Southall).

Shares in Sainsbury's, one of the UK's largest supermarket retailers, slumped by nearly 20% this morning when Delta Two announced it had withdrawn its £10.6bn (€15.2bn) bid.

Delta Two this morning said, in a statement, since submitting its original proposals to the Sainsbury board this summer, the required funding and cost of capital had increased "significantly", adversely affecting their investment case.

"This reflected a combination of factors, including the deterioration of credit markets which impacted the terms of lending and other facilities available to Delta Two, 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 Sainsbury pension trustees for any offer by Delta Two."

The UK takeover panel had given Delta Two until Thursday to decide whether or not to press ahead with the bid, but speculation grew in recent weeks the bid was in trouble.

Sources behind the scenes had already stated J Sainsbury's family shareholders would only recommend the offer if the pension trustees would be able to reach an agreement with Delta Two over the ongoing funding of the pension fund.

The trustees oversee pension benefits for 85,000 members and more than £4bn in assets. The total deficit for the schemes as at October last year was estimated to be £477m.

Unite, Britain's largest union, had previously urged the board to block any bid by Delta Two, citing concerns over the pension scheme.

"Whenever a private equity-type company comes in, it is normal for the pension trustees to want assurances on the future of the fund," a Unite spokesperson told IPE at the time.

Delta Two is the second suitor to pull out of a bid for Sainsbury. The supermarket and key shareholders from the founding Sainsbury family rebuffed a group of private equity investors led by CVC Capital earlier in the year.

Sir Philip Hampton, chairman of J Sainsbury, commented on the Delta Two's decision, saying: "Sainsbury's has attractive future prospects and the recovery strategy commenced in 2004 is well-advanced and continuing to deliver growth in the business. We have a first class management team and colleagues to drive the business forward."

Justin King, chief executive of the supermarket chain, commented: "Interest in Sainsbury's has been borne out of the company's success to date in implementing its recovery strategy."

Commenting on the takeover bid's fall, Richard Jones, principal at Punter Southall Transaction Services said the implication that the trustees stuffed the deal is false.

"The trustees had few if any powers to do this and should have been satisfied - in this case - with a relatively limited financial settlement," he said.

Jones added: "However the Sainsbury family, who effectively had a blocking vote, said that they would not vote for the deal unless the trustees' demands were met.  This effectively swept the rug from under Delta Two and meant that they could not settle with the Trustees on a normal basis, i.e. taking account of the Trustee powers and the actual position." 

This meant that they effectively had to cede to the trustees opening gambit in order to get the Sainsbury family to vote for the deal, according to Jones.

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