CVC And Qatar Abandon £6bn Sainsbury’s Bid

A consortium involving the biggest shareholder in Formula One motor racing and a Qatari state fund have abandoned secret plans to bid for J Sainsbury (Other OTC: JSAIY - news) , Britain’s second-largest supermarket chain.

Sky News can reveal that CVC Capital Partners, the Qatar Investment Authority (QIA) and Brookfield, a giant Canadian property group, drew up detailed plans to make an offer for the grocer earlier this year.

The plans were sufficiently advanced for the consortium to have been given formal approval from the City’s Takeover Panel to act as a joint offeror for Sainsbury’s, according to an insider.

Archie Norman, the chairman of ITV (LSE: ITV.L - news) and a former chairman of Asda, was identified by the bidders as a potential chairman of Sainsbury’s if the takeover had gone through, they added.

CVC (Taiwan OTC: 4744.TWO - news) , Brookfield and the QIA are understood to have regarded Sainsbury’s as being significantly undervalued when they began work on their offer last autumn.

However, the consortium is said to have aborted its plan to approach the Sainsbury’s board shortly after the supermarket chain confirmed that it intended to make an offer for Home Retail Group, the owner of Argos.

It (Other OTC: ITGL - news) was unclear this weekend exactly why or when the putative bid collapsed, although one source said that Sainsbury’s decision to buy Argos had been “a complication”, both because it had altered the financial dynamics of a takeover and had altered Sainsbury’s stated strategy.

Since the formal takeover of HRG was agreed, Sainsbury’s shares have risen, giving the company a market value of £5.5bn at the close of trading on Friday.

The QIA has been Sainsbury’s largest shareholder for the last decade, and now holds just over 25% of the company.

According to Sainsbury’s website, the stake is held through Qatar Holding LLC, a QIA subsidiary.

Earlier this year, the Qataris were reported to be unhappy at Sainsbury’s approach for Argos’s parent company, prompting the grocer to issue a clarifying statement in late January that "the QIA has not yet taken a final position on the proposed Home Retail Group transaction".

Mike Coupe, Sainsbury’s boss, has argued that buying Argos will give Sainsbury’s enormous power in non-food retailing because of the improved supply chain and distribution capabilities that will result from the takeover.

Under the consortium’s plans, CVC would have emerged as the biggest shareholder in Sainsbury’s, with the QIA and Brookfield, the owner of Center Parcs, as minority investors.

Brookfield’s involvement was designed to extract value from Sainsbury’s large property portfolio, according to an insider.

Perella Weinberg Partners, an investment bank, was advising the CVC-led consortium, while Deutsche Bank (LSE: 0H7D.L - news) was appointed to assemble the financing for a bid, according to City sources.

McKinsey, the management consultancy, was also involved in the plan.

No approach was made to the board of Sainsbury’s, and David Tyler, the grocer’s chairman who also chairs Domestic & General, another company backed by CVC, is understood to have been unaware of the consortium’s proposals.

Sainsbury’s has been a perennial subject of takeover speculation dating back to 2007, when a private equity consortium involving CVC withdrew an £11.4bn bid.

Since then, the landscape of British food retailing has changed dramatically, with the big four chains – Tesco (Xetra: 852647 - news) , Sainsbury’s, Asda and Wm Morrison – under assault from fast-growing discount rivals and internet-based competitors.

Sainsbury’s and CVC declined to comment, while none of the other parties could be reached on Saturday.