Plans by private equity groups to buy Sainsbury to profit from its freehold property worth an estimated £7.5 bn (EUR 11bn) have been overshadowed by a warning from the UK retailer's pension fund that it could face a £3 bn shortfall if the takeover goes ahead.
Plans by private equity groups to buy Sainsbury to profit from its freehold property worth an estimated £7.5 bn (EUR 11bn) have been overshadowed by a warning from the UK retailer's pension fund that it could face a £3 bn shortfall if the takeover goes ahead.
A consortium made up of private equity groups CVC, Kohlberg Kravis Roberts, Blackstone and Texas Pacific have been working towards making an offer in the vicinity of £10 bn for Sainsbury. A 'put up or shut up' deadline has been set for 13 April, and the prospect of having to come up with a lot more cash to bolster the pension fund could derail the takeover, city watchers speculated on Friday. Sainsbury's chairman Philip Hampton has, however, said he would be willing to extend that if 'meaningful discussions' were ongoing.
Under UK law, the pension fund must be in a position to tell the Pensions Regulator that the scheme would not be adversely affected should the takeover go ahead. This could involve the private equity firms, which use leverage for buy outs, having to provide cash or assets upfront to bolster the pension fund. Other private equity deals, including Permira's bid for bookseller W H Smith, have fallen at the pensions hurdle.
