Qatari Group Begins Talks with Sainsbury's Pension Fund

A Qatari investment fund that has made a preliminary bid of about $21.3 billion for J Sainsbury said Tuesday that it is holding confidential talks with the British grocer's pension fund.

Delta Two, which has been pursuing Sainsbury since July, said it has signed a confidentiality agreement to exchange information with the trustees of the 85,000-member fund. The fund is considered to be a potential sticking point in any deal.

The Sainsbury fund trustees have hired Penfida Partners as advisers -- the same firm used by the Alliance Boots pension fund earlier this year to successfully negotiate a package worth more than 1 billion pounds ($2 billion) from takeover suitors private equity firm KKR and Stefano Pessina.

"Following the exchange of confidential information, the two parties will be able to engage in detailed discussions regarding the impact of the proposed transaction on the Sainsbury pension schemes and the appropriate terms of any agreement," Delta Two and the pension fund said in a statement Tuesday.

The Sainsbury fund could demand as much as 3 billion pounds ($6 billion) to protect the retirement benefits of its members, according to details released by the trustees earlier this year.

Sainsbury, Britain's third-largest grocery chain, revealed last week that it had opened its books to Delta Two, which already holds 25% of the company.

Delta Two has made a preliminary offer of 600 pence ($12.06) for each remaining share. The stock was up 0.1% at 574.5 pence ($11.55) in midday trading Tuesday.

Earlier this year the company fended off a 10.1 billion pound ($20.6 billion) bid from buyout firm CVC Capital Partners.

European retailers including Sainsbury, William Morrison Supermarkets and Carrefour have attracted strong interest from investors and private equity groups in recent months, largely due to their extensive property portfolios.

Sainsbury owns around 8.6 billion pounds ($17.6 billion) of real estate.

Sainsbury Chairman Philip Hampton and Chief Executive Justin King have repeatedly ruled out a property selloff or split, instead unveiling a new strategic plan in May through which it expects to deliver 3.5 billion pounds ($7.2 billion) of sales growth over three years to March 2010.