Sainsbury's shares plunge over bid

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The blow to takeover hopes sent shares in the UK's third largest supermarket chain plummeting more than 19%, leaving it with a market value of less than £8 billion.

Investment fund Delta Two is backed by the Qatar Investment Authority (QIA), whose chief executive is Sheikh Hamad bin Jassim al Thani - Qatari prime minister and a member of the country's royal family.

But its proposed £10.6 billion offer for the supermarket - first unveiled in July - was hit by rising financing costs following the summer credit crunch and the failure to agree a funding deal with the trustees of the group's pension fund, which has 85,000 members.

Its withdrawal represents the second aborted takeover attempt for Sainsbury's this year after a private equity consortium failed to agree a deal in April.

Numis Securities analyst Jose Marco said: "This is clearly negative for the Sainsbury's share price in the short term."

Delta Two had spent around £2.5 billion on amassing a 25% stake in the supermarket in two swoops during April and June, although its holding has lost around £500 million in value on Monday.

Seymour Pierce analyst Andrew Wade added: "Although the management team at Sainsbury's has done an excellent job starting the recovery and driving sales growth, there is much still left to do and we cannot see the business supporting the current share price."

The investment vehicle said its funding and capital costs had "increased significantly, which has adversely affected the investment case".

The final blow to the Delta Two approach came after the QIA refused to sanction an extra £500 million in funding for the deal. The company had until Thursday to declare whether it would make a bid for the company under a Takeover Panel deadline.