The QIA is getting hungry for acquisitions

A report in the UK's Sunday Telegraph this month linked two Qatar backed funds with a bid for J. Sainsbury, the third largest British supermarket chain, while, just a few days later, details emerged of the Qatar Investment Authority's strong interest in buying into Airbus parent EADS. This follows an unsuccessful battle last year to secure UK utility firm Thames Water from its then German owners, despite bidding well over $18 billion.

Keen to take a stake

Initial press reports seemed to indicate that the Delta Two and Delta Three funds, which are backed by the Gulf state but headed up by entrepreneur Paul Taylor, held discussions with another British retailer, the Marks & Spencer Group, over a joint bid for Sainsbury, which, since takeover speculation has hit the business pages, has seen its rising share price push its value above $17 billion. This suggestion has since been denied by pretty much all involved, but Sheikh Hamad bin Jassim bin Jabor Al Thani, the CEO of the QIA, admitted to the Daily Telegraph the retail chain is an attractive proposition as a 'strategic investment'.

A potential spanner in the works comes in the form of a plethora of private equity groups keen to launch takeover bids of their own. But via Taylor's Delta Two fund vehicle, the QIA has now acquired a one per cent holding in Sainsbury and clearly has the financial impetus to take a much more sizeable stake. Last year, via the Delta Three fund, Qatar played a part in Taylor's $2.7 billion acquisition of UK nursing-home operator Four Seasons Healthcare.

EADS involvement

While Qatar's interest in Sainsbury may or may not be followed up, its plan to acquire a stake in European Aeronautic Defence and Space, the parent firm of the currently deeply troubled Airbus, is rather more advanced with Al Thani admitting that talks have been held with EADS regarding a possible involvement.

Some observers might be left scratching their heads as to why the QIA might want to buy into the parent company of a firm that is set to post its first ever loss for 2006 after seemingly endless delays to its A380 project, which is now two years behind schedule, and the complete re-design of its midsize A350 which has thus far proved extremely unpopular with potential purchasers. The A380 crisis is likely to generate operating losses of $6.3 billion through 2010.

Upside potential

But EADS has just this week managed to get board approval for Power8, a major re-structuring project, at Airbus which will see significant job losses in the UK, Spain and most especially France and Germany, as well as the sale of some manufacturing plants. If this radical shake-up can stabilise the plane-maker and its A380, with its various technical problems now hopefully in the past, can prove to be a big success then EADS's shares, which may now be close to the floor, will have plenty of upside potential which is what is so appealing to Al Thani and the QIA right now.

The QIA could buy up to 10 per cent of EADS and it already possesses a 7 per cent holding in French media firm Lagardere, which itself has a sizeable stake in EADS. But, as with its possible Sainsbury venture, the QIA will face rivals keen to buy into EADS while it is under-valued. One such competitor could be rival Gulf based investment firm Dubai International Capital whose CEO Sameer Al Ansari confirmed, and then denied, an interest in EADS only last November.

It remains to be seen, of course, whether Qatar's interest in either Sainsbury or EADS actually leads to a deal but, like its failed attempt to buy Thames Water last year, the QIA is undoubtedly keen to widen the country's investment base. Once more acquisitions are finally added to the QIA's portfolio, they will only provide even more robustness to the country's already stellar economic performance.