Sainsbury’s Opens Up to Delta Two Offer

20/09/07 J Sainsbury, Britain’s third largest supermarket has confirmed that it will open its books to Delta Two, the Qatari-backed fund proposing a 600p-a-share offer for the supermarket group. Delta Two will meet with Sainsbury's pension trustees this week to secure their backing for the £10.6 billion deal which could entail the bidder stumping up a £2 billion up-front cash payment to underpin future retirement benefits.

Sainsbury said that following extensive discussions between the parties concerning the key aspects of Delta Two's proposal and, following the submission of a revised proposal by Delta Two, the Board of Sainsbury's has unanimously agreed that Delta Two may undertake a limited period of confirmatory due diligence on the Company in order to progress its proposal. There can, however, be no certainty that any offer for Sainsbury's will be made.

Delta Two has reconfirmed its proposed offer price of 600 pence per share in cash.  This offer price would represent a multiple of 40.8 times the earnings per share of Sainsbury's for the fifty two weeks ended 24 March 2007.  Sainsbury's shareholders would also be entitled to receive an interim dividend of 3.0 pence per share which the Board of Sainsbury's would intend to declare in respect of the period ending 6 October 2007.

The move represents a £0.85 billion increase in offer funding by way of ordinary shares and preference shares, which will result in a total of £4.85 billion in funding by way of ordinary shares, preference shares and payment-in-kind notes. No part of this funding would represent a liability of the existing Sainsbury's group.  The increase in funding by way of ordinary shares and preference shares, which are guaranteed by the State of Qatar, leads to a reduction in debt funding provided by third parties in comparison to Delta Two's original proposal announced on 19 July 2007.

Meanwhile new commitment letters from Delta Two's financing banks in respect of debt facilities totalling £9.6 billion have been set. These facilities (provided by ABN Amro NV, Credit Suisse and Dresdner Kleinwort Limited) together with the £4.85 billion of committed funding from ordinary shares, preference shares and payment-in-kind notes would be used to fund the offer, repay existing Sainsbury's debt and inter alia provide long term financing for the Sainsbury's group following an acquisition of Sainsbury's by Delta Two.

Tony Campbell, former Deputy Chief Executive of ASDA Group plc, would becomenon-executive Chairman of Sainsbury's following completion of any offer by Delta Two. Delta Two intends that Sainsbury's would adopt the guidance in the Walker Report relating to enhanced reporting and disclosure standards for privately-owned companies.

Prior to reaching agreement on a process for due diligence, Delta Two and Sainsbury's held extensive discussions on Delta Two's proposed capital structure and its plans for the business, including the implications for stakeholders.

Delta Two's business plan is focused on growth, envisaging £3.5 billion of capital investment over the next five years to fund new store expansion, the continued refurbishment of existing stores, further development of Sainsbury's non-food offering and continued investment in infrastructure.  Delta Two has provided assurances that Sainsbury's will have operational flexibility to compete in order to maintain and enhance customer goodwill. The strong relationships Sainsbury's has with its suppliers would be maintained, as would its support for the quality and diversity of food production in the UK.  Delta Two shares Sainsbury's management's view that ownership of property is integral to the long-term success of the business.  Accordingly, and in line with management's current operational strategy, the retail business and Sainsbury's property assets would remain under common ownership in the same corporate group.  In summary, under Delta Two's ownership, Sainsbury's would see significant investment and further expansion and would remain a robust competitor in its markets, even in challenging industry conditions.