Supermarkets and stock markets attract the QIA

The QIA has been negotiating the takeover of the J Sainsbury retail chain for over two months and, while a number of thorny issues have presented themselves, it is possible the British firm could open its books for due diligence imminently. But the QIA's targeting of Nasdaq's 31 per cent holding in the London Stock Exchange has been rather more fast-moving, yet this deal too is still far from certain.

Shopping for Sainsbury

Qatar's interest in the Sainsbury chain first appeared in the business pages in February when the QIA-backed Delta Two and Delta Three funds were allegedly discussing a takeover bid for the group with rival British retailer Marks and Spencer. These rumours were flatly denied, but, barely two months later, Delta Two had snapped up a 17.4 per cent stake in Sainsbury.

This was increased to 25 per cent in June and finally the intention to mount a full-blooded takeover bid was revealed. Delta Two made a preliminary approach to Sainsbury in July, offering $21.6bn for the firm, and within weeks the pressure was starting to mount on the UK retailer to either accept or reject Qatar's advances.

By this time, however, the subprime mortgage crisis in the US was starting to stoke fears of a global credit crunch. Suddenly, the $12bn worth of debt that the QIA was looking to take on to finance the deal began to concern Sainsbury's board and since then talks have been held to see if the proportion of equity can be raised. Delta Two has reportedly offered to lift the equity share by around $1bn, while adjustments to $3bn worth of payment-in-kind notes may also be made.

Resistance and uncertainties

But this hasn't been Qatar's only headache as the UK's largest union, Unite, has urged Sainsbury's board to reject Delta Two's offer, questioning the QIA's intentions if it were successful in its bid. Unite has threatened to approach the Competition Commission, which regulates mergers and acquisitions, if the board gives Qatar the green light.

As if this wasn't enough, it has recently emerged, via the UK's Sunday Telegraph, that Sainsbury's pension trustees plan to press the QIA into pumping billions of dollars into the firm's pension fund on completion of any takeover. A clause in Sainsbury's pension trust allows the trustees to demand additional contributions on change of ownership.

It would seem if Sainsbury's board can be re-assured regarding debt levels in the deal and the QIA isn't driven away by the combined irritants of trade unions and pension guardians, a deal should be achieved. But if there is a prospect of the Competition Commission getting involved in examining the takeover, then a pull-out becomes more likely.

Moving in on the LSE

By contrast, the QIA's decision to pursue Nasdaq's 31 per cent holding in the London Stock Exchange (LSE), and its current position as the clear front-runner, is impressive considering that the New York based exchange only put the stake on the market last month.

A number of international big-hitters were linked to a bid, including Singapore's Temasek Holdings, which has denied any interest, and Germany's Deutsche Boerse which has now fallen by the wayside. Recent reports suggest the QIA has offered $28 per share for Nasdaq's holding, which would value the stake at around $1.7bn.

But once again, while it may look as though the QIA has a clear run, other concerns lurk in the wings. One of the reasons why Nasdaq is selling the stake is to generate funds to help raise its $3.7bn cash and stock offer for Nordic market operator OMX closer to, or even above, the $4bn straight cash offered by rival bidder Borse Dubai.

Threat from Dubai

Nasdaq has had its eye on OMX for months and it is determined to seal the deal after missing out on a takeover of the LSE earlier this year. A report in the Wall Street Journal has hinted Nasdaq may consider selling part of itself to Borse Dubai in exchange for the Gulf based outfit deciding to modify, or even drop, its interest in OMX.

This raises the possibility Nasdaq's LSE stake could also be used as bait to lure Borse Dubai away from OMX, which would bring Qatar and Dubai into direct competition - and not for the first time. The QIA was thought to have been interested in buying the Barneys New York chain of department stores which was recently acquired by Dubai based investment arm Istithmar.

Commitment from Qatar

It seems likely the sale of Nasdaq's LSE stake will involve a few twists and turns yet and it is entirely conceivable the QIA may end up buying a stake in Nasdaq itself. But whatever the outcome, the QIA is clearly setting out its stall on an aggressive acquisition strategy in the months ahead.

The QIA is to hire dozens of new staff next year while it is also planning to set up overseas offices. It has also secured a $3bn loan which it intends to use as a 'war chest for investments' according to Reuters.

Qatar may have encountered a number of unforeseen hindrances, as well as stiff competition, in its attempts to make acquisitions, but, with its sizeable financial clout and unflinching commitment, it is only a matter of time before it snares a big fish.

See also:
Qatar teams up with the UAE
The QIA is getting hungry for acquisitions
$4bn Dubai bid for OMX part of a wider financial vision