Sainsbury's rules out property sell-off

Sainsbury's has given permission to the Qatari-backed Delta Two group to undertake due diligence of the UK retail chain's business in preparation of a possible takeover. But Sainsbury's ruled out the divestment of its substantial property holdings in a sale and leaseback operation.

'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,' the parties said in a statement.

Sainsbury's has been the focus all year of speculation that it was about to be taken over to allow investors to cash in on a sale of its freehold property. Earlier this year, Sainsbury's resisted pressure from property entrepreneur Robert Tchenguiz to sell some of the real estate to return cash to shareholders. Private equity groups Blackstone, Kohlberg Kravis Roberts and CVC Capital Partners indicated in early February that they might bid for Sainsbury, but this came to nothing.

In Thursday's statement, Sainsbury's and Delta Two, which owns a quarter of the retailer, gave an update on the takeover discussions between them which have been dogged by the level of debt funding involved. Delta Two has now been given permission to carry out a review of the retailer’s books for a 'limited period' to enable it to advance its proposed 600 pence a share bid. The offer price represents a multiple of 40.8 times the earnings per share of Sainsbury's for the 52 weeks up to March 2007.

Delta Two is proposing to fund the offer with £4.8 bn in shares and payment-in-kind notes, which are considered by many financial professionals to be a form of debt.