Delta Two Discussions with Sainsbury's Terminated

06/11/07 Delta Two has concluded that it is not in the best interests of stakeholders to proceed with an offer for Sainsbury and has informed the Board of Sainsbury of this decision.

On 18 July 2007 Delta Two announced that it was in preliminary discussions with Sainsbury relating to the possibility of Delta Two making a cash offer to acquire the balance of the ordinary share capital of Sainsbury that it did not already own.

Since Delta Two's original proposal was submitted to the Board of Sainsbury, the required funding and cost of capital has increased significantly, which has adversely affected the 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. In dealing with the funding implications presented by these issues, Delta Two's objective has been to ensure that following acquisition Sainsbury's capital structure would enable it to remain a robust competitor in its markets, even in challenging industry conditions.

Paul Taylor, Principal of Three Delta LLP, which is the strategic investment adviser to Delta Two in relation to its investment in Sainsbury, said: "Delta Two has strict investment criteria and has approached this opportunity in a disciplined manner.  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. 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. Delta Two remains fully supportive of management's operational strategy. "