NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF THAT JURISDICTION.
This is an announcement of a possible offer under Rule 2.4 of the City Code on Takeovers and Mergers (the "Code"). This announcement is not an announcement of a firm intention to make an offer under Rule 2.7 of the Code and there can be no certainty that an offer will be made.
Possible offer for Home Retail Group plc by J Sainsbury plc
2 February 2016
For immediate release
The Boards of J Sainsbury plc ("Sainsbury's") and Home Retail Group plc ("Home Retail Group" or the "Company") announce that they have reached agreement on the key financial terms of a possible offer for Home Retail Group by Sainsbury's (the "Possible Offer").
Terms of the Possible Offer
Under the terms of the Possible Offer Home Retail Group shareholders will receive per Home Retail Group share:
· 0.321 New Sainsbury's shares; and
· 55 pence in cash.
Proposed Capital Returns
In addition, Home Retail Group shareholders will receive payments as set out below (together, the "Proposed Capital Returns") per Home Retail Group share, payable before completion of the Possible Offer, of:
· approximately 25 pence (the "Homebase Capital Return"); and
· 2.8 pence in lieu of a final dividend in respect of the financial year ending 27 February 2016 (the "Additional Capital Return").
The Homebase Capital Return reflects the £200m return in respect of (and conditional upon) the sale of Homebase, announced by Home Retail Group on 18 January 2016 (the "Homebase Sale"). Home Retail Group intends to pay the Homebase Capital Return and the Additional Capital Return (or a final dividend) whether or not the Possible Offer is made or completed.
The Possible Offer implies a value of approximately £1.1bn for Home Retail Group's share capital, based on the closing price of Sainsbury's shares on 1 February 2016. The Possible Offer and Proposed Capital Returns together imply a value of approximately 161.3 pence per Home Retail Group share, based on the closing price of Sainsbury's shares on 1 February 2016, and a value of approximately £1.3bn for Home Retail Group's share capital.
The Possible Offer and Proposed Capital Returns together represent a premium of approximately 63% to the closing price of a Home Retail Group share on 4 January 2016, the last business day prior to the start of the offer period.
The Possible Offer will also include a mix and match facility(1).
Under the terms of the Possible Offer, Home Retail Group shareholders will own approximately 12 per cent. of the combined group (the "Combined Group"), based on the current issued share capital of Sainsbury's and Home Retail Group.
Note:
[1] Satisfaction of elections under the mix and match facility will be subject to equal and opposite elections made by other Home Retail Group shareholders
Intention to Recommend
Whilst the Board of Home Retail Group continues to believe in the prospects for the standalone Company, it recognises that the Possible Offer will provide an attractive opportunity for Home Retail Group shareholders to receive a full valuation for their shares, and, through their shareholding in the Combined Group, also to participate in the value created by the Combined Group from the transaction.
The Board of Home Retail Group has indicated to Sainsbury's that it is willing to recommend the key financial terms of the Possible Offer to Home Retail Group shareholders, subject to its fiduciary duties and reaching agreement on the other terms and conditions and the satisfactory completion of reciprocal due diligence. Any transaction will be subject to regulatory approval and the completion of the sale of Homebase (amongst other conditions).
Transaction Rationale
The combination of Sainsbury's and Home Retail Group is an attractive proposition for the customers and shareholders of both companies, establishing a platform for long-term value creation. The combination is an opportunity to bring together two of the UK's leading retail businesses, with complementary product offers, focused on delivering quality products and services at fair prices, through an integrated, multi-channel proposition.
Specifically, the combination of Home Retail Group and Sainsbury's will:
· Create a food and non-food retailer of choice for customers, building on the strong heritages of both businesses whose brands are renowned for trust, quality, value and customer service;
· Deliver profitable sales growth by offering customers the right combination of location, range, speed and flexibility, across a wide range of products;
· Bring together multi-channel capabilities including digital, store and delivery networks to provide fast, flexible and reliable product fulfilment to store or to home across a wide range of food and non-food products;
· Optimise the use of their combined retail space. The combined entity will have attractively located stores across the UK, with an enhanced supply and delivery network and a strong presence across food and grocery, clothing, homewares, toys, stationery, electricals, furniture and other general merchandise;
· Create a financial services proposition that will provide a wider range of customer-centric services including credit cards, loans, deposits, insurance and ATMs; and
· Deliver significant revenue and cost synergy potential, as outlined further below.
Financial Impact
Sainsbury's expects the Possible Offer will be accretive to its earnings per share in the first full year following completion. In the third full year following completion Sainsbury's also expects the Possible Offer will result in double digit earnings per share accretion and a low to mid-teens return on invested capital (inclusive of implementation costs)(2).
Further to the strategic rationale as outlined in the Sainsbury's investor presentation dated 13 January 2016, Sainsbury's believes that the combination of Sainsbury's and Home Retail Group will generate EBITDA synergies of not less than £120m in the third full year after completion, as described further below. Sainsbury's believes that these synergies further enhance the attractiveness of the Possible Offer.
The constituent elements of quantified synergies, which are in addition to savings previously targeted by Sainsbury's and Home Retail Group separately, comprise the following:
• approximately one-half of the identified synergies are expected to be generated from Argos concessions, arising from (i) cost savings generated from the relocation of certain existing Argos stores into concessions in Sainsbury's stores, and (ii) revenue gains from new concessions within Sainsbury's stores, including but not limited to cross-selling opportunities and the expansion of Click and Collect desks;
• approximately one-third of the identified synergies are expected to be cost synergies generated by removing duplication and overlap from both central and support functions at Sainsbury's and Home Retail Group, together with procurement benefits resulting from the Combined Group's scale; and
• the remainder of the identified synergies are expected to be further revenue synergies, principally from the sale of Sainsbury's clothing, homewares and seasonal and leisure ranges through the existing Argos network.
It is expected that the realisation of the identified synergies will require one-off exceptional costs of approximately £140 million, split equally across the first three full years following completion.
It is also expected that incremental capital expenditure of approximately £140 million will be incurred in the three years following completion, relating to store fit-out expenditure. Approximately 20% of this capital expenditure will be incurred in the first year, with the remainder split equally in the second and third year following completion.
The synergies referred to above are expected to be recurring and are expected to arise as a direct result of the Possible Offer and could not be achieved independently of the Possible Offer. The synergies are also stated net of anticipated dis-synergies, arising principally from potential cannibalisation of Argos store revenue (where an existing standalone Argos store is in the vicinity of a newly established Argos concession store within a Sainsbury's supermarket). For the avoidance of doubt, the EBITDA impact of the synergies as set out above already reflects the impact of these identified dis-synergies.
Please refer to the Appendix entitled "Quantified Financial Benefits Statement" for further detail on the above. The Quantified Financial Benefits Statement has been reported on under the Code by Deloitte LLP, Sainsbury's reporting accountant, and by Morgan Stanley and UBS, Sainsbury's financial advisers, as set out in Part B and Part C of the Appendix to this announcement.
Sainsbury's intends to finance the cash consideration for the Possible Offer through its existing debt facilities and resources, to be entirely refinanced at a later date through the proposed transfer of the Financial Services business to Sainsbury's Bank. This would have the consequence of lowering Group leverage (excluding Sainsbury's Bank) relative to Sainsbury's current standalone Group leverage.
Note:
[2] Return on invested capital defined as acquired post-tax EBIT plus post-tax synergies divided by purchase price plus implementation costs net of tax
Reservations
The Possible Offer does not impose any obligation on Sainsbury's to make an offer, nor does it evidence a firm intention to make an offer within the meaning of the Code. Sainsbury's does not, therefore, regard it as forming the basis for an announcement pursuant to Rule 2.2(a) of the Code.
Sainsbury's also reserves the right:
• to make an offer at any time on reduced terms than 0.321 New Sainsbury's shares and 55 pence in cash for each Home Retail Group share:
− with the agreement or recommendation of the Board of Directors of Home Retail Group;
− if a third party announces a firm intention to make an offer for Home Retail Group pursuant to Rule 2.7 of the Code, which, at that date is valued at a lower price than the value of 0.321 New Sainsbury's shares and 55 pence in cash for each Home Retail Group share and the Proposed Capital Returns (less any additional dividends declared, made or paid);
− if Home Retail Group announces, declares or pays any dividend or any other distribution to shareholders (other than the Proposed Capital Returns), in which case Sainsbury's reserves the right to make an equivalent reduction in its offer price; or
− following announcement by Home Retail Group of a whitewash transaction pursuant to the Code; and
• to introduce other forms of consideration and/or vary the mix or composition of consideration of any offer.
Any firm offer in accordance with Rule 2.7 of the Code (a "Firm Offer") will be subject to, amongst other things, satisfactory completion of due diligence and the recommendation of Home Retail Group's Board of Directors.
The Homebase Sale
Completion of the Homebase Sale is expected to be a condition to a Possible Offer by Sainsbury's. The Homebase Sale is expected to proceed, subject to shareholder approval, as indicated in the Company's announcement of 18 January 2016. A circular containing further details of the Homebase Sale and a notice convening a general meeting will be sent to Home Retail Group shareholders as soon as practicable, with completion of the Homebase Sale expected to occur during the first quarter of the 2016 calendar year.
Timetable Extension
In order to facilitate due diligence, the Board of Home Retail Group and the Takeover Panel have agreed to a three week extension of the relevant deadline in accordance with Rule 2.6(c) of the Code. As a result and in accordance with Rule 2.6(a) of the Code, Sainsbury's must, by not later than 5.00 p.m. on 23 February 2016, either announce a firm intention to make an offer for Home Retail Group in accordance with Rule 2.7 of the Code or announce that it does not intend to make an offer for Home Retail Group, in which case the announcement will be treated as a statement to which Rule 2.8 of the Code applies.
There can be no certainty that Sainsbury's will proceed to make a Firm Offer for Home Retail Group. A further announcement will be made in due course.
Publication on a website
A copy of this announcement will be made available, subject to certain restrictions relating to persons resident in restricted jurisdictions, on the Sainsbury's website at http://www.j-sainsbury.co.uk/investor-centre/disclaimer/
by no later than 12 noon (London time) on 3 February 2016. The content of the website referred to in this announcement is not incorporated into and does not form part of this announcement.
A presentation outlining an overview of the strategic rationale for the combination can be found at www.j-sainsbury.co.uk/investor-centre/results-and-presentations/
In accordance with Rule 26.1 of the Code, a copy of this announcement will be available at www.homeretailgroup.com by no later than 12 noon (London time) on 3 February 2016. The content of the website referred to in this announcement is not incorporated into and does not form part of this announcement.
For further information please contact:
J Sainsbury plc
Investor Relations, J Sainsbury plc
Duncan Cooper +44 (0) 20 7695 4740
Media Relations, J Sainsbury plc
Louise Evans +44 (0) 7341 070 270
Morgan Stanley, Financial Adviser and Corporate Broker to J Sainsbury plc
Paul Baker +44 (0) 20 7425 8000
Ian Hart
Nick Bishop
UBS, Financial Adviser and Corporate Broker to J Sainsbury plc
Hew Glyn Davies +44 (0) 20 7567 8000
Anna Richardson Brown
Brunswick, PR Adviser to J Sainsbury plc
Laura Buchanan +44 (0) 20 7404 5959
Home Retail Group plc
Home Retail Group plc
Richard Ashton, Finance Director +44 (0)1908 600 291
Mark Willis, Director of Investor Relations
BofA Merrill Lynch, Financial Adviser and Corporate Broker to Home Retail Group plc
Jonathan Bewes +44 (0)20 7628 1000
Eamon Brabazon
Geoff Iles
Luke McMullan
Finsbury, PR Adviser to Home Retail Group plc
Rollo Head +44 (0)20 7251 3801
Important notices
Morgan Stanley & Co. International plc ("Morgan Stanley") which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority in the UK is acting as joint financial adviser to Sainsbury's and no one else in connection with the matters set out in this announcement. In connection with such matters, Morgan Stanley, its affiliates and its or their respective directors, officers, employees and agents will not regard any other person as their client, nor will they be responsible to any other person for providing the protections afforded to their clients or for providing advice in relation to the contents of this announcement or any other matter referred to herein.
UBS Limited ("UBS") which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority in the UK is acting as joint financial adviser to Sainsbury's and no one else in connection with the matters set out in this announcement. In connection with such matters, UBS, its affiliates, and its or their respective directors, officers, employees and agents will not regard any other person as their client, nor will they be responsible to any other person for providing the protections afforded to their clients or for providing advice in relation to the contents of this announcement or any other matter referred to herein.
Merrill Lynch International ("BofA Merrill Lynch"), a subsidiary of Bank of America Corporation, is acting exclusively for Home Retail Group in connection with the matters set out in this announcement and for no one else and will not be responsible to anyone other than Home Retail Group for providing the protections afforded to its clients or for providing advice in relation to the matters set out in this announcement.
This announcement is not intended to, and does not, constitute or form part of any offer, invitation or the solicitation of an offer to purchase, otherwise acquire, subscribe for, sell or otherwise dispose of, any securities whether pursuant to this announcement or otherwise.
The distribution of this announcement in jurisdictions outside the United Kingdom may be restricted by law and therefore persons into whose possession this announcement comes should inform themselves about, and observe, such restrictions. Any failure to comply with the restrictions may constitute a violation of the securities law of any such jurisdiction.
This announcement is an advertisement and not a prospectus or prospectus equivalent document and investors should not make any investment decision in relation to any Sainsbury's or Home Retail Group shares except on the basis of information in the formal offer documentation to be published in due course, if a Firm Offer is made.
Any securities which may be issued in connection with the Offer have not been, and will not be, registered under the US Securities Act of 1933, as amended (the "US Securities Act"), and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the US Securities Act. Sainsbury's does not intend to register any portion of the Offer in the United States and no public offering will be made in the United States. Neither the US Securities and Exchange Commission nor any US state securities commission has approved or disapproved of any securities to be issued in connection with the Offer. Any representation to the contrary is a criminal offence in the United States.
Forward looking statements
This announcement may contain certain "forward looking statements". The forward-looking statements contained in this announcement include statements relating to the Possible Offer, and other statements other than historical facts. Forward looking statements often use words such as "believe", "expect", "estimate", "intend", "anticipate" and words of a similar meaning. These forward-looking statements may include statements relating to the expected characteristics of the Combined Group and expected benefits of the Possible Offer. You should not place undue reliance on these forward-looking statements, which reflect the current views of Sainsbury's and Home Retail Group, are subject to risks and uncertainties about Sainsbury's and Home Retail Group and are dependent on many factors, some of which are outside of Sainsbury's' control. There are important factors, risks and uncertainties that could cause actual outcomes and results to be materially different, including that there can be no certainty that the Possible Offer described in this announcement will result in a Firm Offer. Except as required by law, Sainsbury's undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
No statement in this announcement (including any statement of estimated synergies) is intended as a profit forecast or a profit estimate and no statement in this announcement should be interpreted to mean that earnings per Sainsbury's share or Home Retail Group share for the current or future financial years would necessarily match or exceed the historical published earnings per Sainsbury's share or Home Retail Group share.
APPENDIX
QUANTIFIED FINANCIAL BENEFITS STATEMENT
PART A
The section of this announcement referring to the Financial Impact of the Possible Offer includes statements of estimated cost savings and synergies expected to arise from the Possible Offer (together, the Quantified Financial Benefits Statement). As identified in the Financial Impact section of this announcement, finalisation of the integration plan will be subject to engagement and collective consultation processes if applicable.
A copy of the Quantified Financial Benefits Statement is set out below:
Further to the strategic rationale as outlined in the Sainsbury's investor presentation dated 13 January 2016, Sainsbury's believes that the combination of Sainsbury's and Home Retail Group will generate EBITDA synergies of not less than £120m in the third full year after completion, as described further below. Sainsbury's believes that these synergies further enhance the attractiveness of Sainsbury's Possible Offer.
The constituent elements of quantified synergies, which are in addition to savings previously targeted by Sainsbury's and Home Retail Group separately, comprise the following:
• approximately one-half of the identified synergies are expected to be generated from Argos concessions, arising from (i) cost savings generated from the relocation of certain existing Argos stores into concessions in Sainsbury's stores, and (ii) revenue gains from new concessions within Sainsbury's stores, including but not limited to cross-selling opportunities and the expansion of Click and Collect desks;
• approximately one-third of the identified synergies are expected to be cost synergies generated by removing duplication and overlap from both central and support functions at Sainsbury's and Home Retail Group, together with procurement benefits resulting from the Combined Group's scale; and
• the remainder of the identified synergies are expected to be further revenue synergies, principally from the sale of Sainsbury's clothing, homewares and seasonal and leisure ranges through the existing Argos network.
It is expected that the realisation of the identified synergies will require one-off exceptional costs of approximately £140 million, split equally across the first three full years following completion.
It is also expected that incremental capital expenditure of approximately £140 million will be incurred in the three years following completion, relating to store fit-out expenditure. Approximately 20% of this capital expenditure will be incurred in the first year, with the remainder split equally in the second and third year following completion.
The synergies referred to above are expected to be recurring and are expected to arise as a direct result of the Possible Offer and could not be achieved independently of the Possible Offer. The synergies are also stated net of anticipated dis-synergies, arising principally from potential cannibalisation of Argos store revenue (where an existing standalone Argos store is in the vicinity of a newly established Argos concession store within a Sainsbury's supermarket). For the avoidance of doubt, the EBITDA impact of the synergies as set out above already reflects the impact of these identified dis-synergies.
Further information on the bases of belief supporting the Quantified Financial Benefits Statement, including the principal assumptions and sources of information, is set out below.
Bases of Belief and Principal Assumptions
Following initial discussions regarding the Possible Offer, a synergy development team was established to evaluate and assess the potential synergies available for the integration and undertake an initial planning exercise (the "Sainsbury's Synergy Team" or the "Team"). The Team, which comprises senior strategy and financial colleagues, has worked collaboratively to identify and quantify potential synergies as well as estimate any associated costs on behalf of the Directors. The Team also worked alongside external consultants to prepare a detailed synergy plan.
The Team has engaged with the relevant functional heads and other personnel to provide input into the development process and to agree on the nature and quantum of the identified synergy initiatives. In preparing the Quantified Financial Benefits Statement, Sainsbury's has relied on existing public disclosure from Home Retail Group as well as information available to it from existing trials of Argos concessions in its stores. In circumstances where data has been limited due to lack of access to Home Retail Group, the Team has made estimates and assumptions to aid its development of individual synergy initiatives. The assessment and quantification of the potential synergies have in turn been informed by Sainsbury's management's industry experience and knowledge of its existing business.
The Sainsbury's Synergy Team has sought to assess synergies in relation to the Home Retail Group central functions and the Argos business. The Sainsbury's Synergy Team has not sought to assess synergies in relation to the Homebase and Habitat businesses. The cost bases used as the basis for the Quantified Financial Benefits Statement are those contained in Home Retail Group's FY15 Annual Report and Accounts and Sainsbury's FY15 Annual Report and Accounts.
The majority of cost saving synergies are driven by physical consolidation that is within the influence of Sainsbury's management, whereas the delivery of the revenue synergies is more complex and to some extent outside the full control of Sainsbury's management.
In general, the synergy assumptions have in turn been risk adjusted, exercising a degree of prudence in the calculation of the estimated synergy benefit set out above.
Reports
As required by Rule 28.1(a) of the Code, Deloitte LLP, as reporting accountants to Sainsbury's, have provided a report stating that, in their opinion, the Quantified Financial Benefits Statement has been properly compiled on the basis stated. In addition Morgan Stanley and UBS, as joint financial advisers to Sainsbury's, have provided a joint report stating that, in their view, the Quantified Financial Benefits Statement has been prepared with due care and consideration.
Copies of these reports are included in Parts B and C of this Appendix. Each of Deloitte LLP, Morgan Stanley and UBS has given and not withdrawn its consent to the publication of its report in this announcement in the form and context in which it is included.
Notes
These statements are not intended as a profit forecast and should not be interpreted as such. These statements of estimated synergies relate to future actions and circumstances which, by their nature, involve risks, uncertainties and contingencies. As a result, the estimated synergies referred to may not be achieved, or may be achieved later or sooner than estimated, or those achieved could be materially different from those estimated. Neither these statements nor any other statement in this announcement should be construed as a profit forecast or interpreted to mean that Sainsbury's earnings in the first full year following completion of the proposed acquisition, or in any subsequent period, will necessarily match or be greater than or be less than those of Sainsbury's or Home Retail Group for the relevant preceding financial period or any other period.
Due to the scale of the enlarged Sainsbury's business, there may be additional changes to the Combined Group's operations. As a result, and given the fact that the changes relate to the future, the resulting synergies may be materially greater or less than those estimated.
In arriving at the estimate of synergies set out in this announcement, the Sainsbury's Synergy Team have assumed that:
• there will be no significant impact on the underlying operations of either business;
• there will be no material change to macroeconomic, political or legal conditions in the markets or regions in which in the Combined Group operates which will materially impact on the implementation of or costs to achieve the proposed cost savings; and
• there will be no material change in exchange rates.
PART B
REPORT FROM DELOITTE
The Board of Directors
on behalf of J Sainsbury Plc
33 Holborn
London
EC1N 2HT
UBS Limited
1 Finsbury Avenue
London
EC2M 2PP
Morgan Stanley & Co International plc
25 Cabot Square
Canary Wharf
London
E14 4QA
2 February 2016
Dear Sirs
POSSIBLE OFFER FOR HOME RETAIL GROUP PLC (THE "TARGET") BY J SAINSBURY PLC (THE "OFFEROR")
We report on the statement made by the directors of the Offeror (the "Directors") of quantified financial benefits set out in Part A of the Appendix of this announcement (the "Announcement") issued by the Offeror (the "Statement"). The Statement has been made in the context of the disclosures within Part A setting out, inter alia, the basis of the Directors' belief (identifying the principal assumptions and sources of information) supporting the Statement and their analysis, explanation and quantification of the constituent elements.
Responsibilities
It is the responsibility of the Directors to prepare the Statement in accordance with Rule 28 of the Takeover Code.
It is our responsibility to form our opinion, as required by Rule 28.1(a) of the Takeover Code, as to whether: the Statement has been properly compiled on the basis stated and to report that opinion to you.
This report is given solely for the purposes of complying with Rule 28.1(a)(i) of the Takeover Code and for no other purpose. Therefore, to the fullest extent permitted by law we do not assume any other responsibility to any person for any loss suffered by any such person as a result of, arising out of, or in connection with this report or our statement, required by and given solely for the purposes of complying with Rule 23.3 of the Takeover Code, consenting to its inclusion in the Announcement.
Basis of opinion
We conducted our work in accordance with the Standards for Investment Reporting issued by the Auditing Practices Board in the United Kingdom.
Our work included considering whether the Statement has been accurately computed based upon the disclosed bases of belief (including the principal assumptions). Whilst the bases of belief (and the principal assumptions) upon which the Statement is based are solely the responsibility of the Directors, we considered whether anything came to our attention to indicate that any of the bases of belief (or principal assumptions) adopted by the Directors which, in our opinion, are necessary for a proper understanding of the Statement have not been disclosed or if any basis of belief (or principal assumption) made by the Directors appears to us to be unrealistic. Our work did not involve any independent examination of any of the financial or other information underlying the Statement.
We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with reasonable assurance that the Statement has been properly compiled on the basis stated.
Since the Statement (and the principal assumptions on which it is based) relates to the future, the actual financial benefits achieved are likely to be different from those anticipated in the Statement and the differences may be material. Accordingly, we can express no opinion as to the achievability of the financial benefits identified by the Directors in the Statement.
Our work has not been carried out in accordance with auditing or other standards and practices generally accepted in jurisdictions outside the United Kingdom, including the United States of America, and accordingly should not be relied upon as if it had been carried out in accordance with those standards and practices. We have not consented to the inclusion of this report and our opinion in any registration statement filed with the SEC under the US Securities Act of 1933 (either directly or by incorporation by reference) or in any offering document enabling an offering of securities in the United States (whether under Rule 144A or otherwise). We therefore accept no responsibility to, and deny any liability to, any person using this report and opinion in connection with any offering of securities inside the United States of America or who makes a claim on the basis they had acted in reliance on the protections afforded by United States of America law and regulation.
Opinion
In our opinion, based on the foregoing, the Statement has been properly compiled on the basis stated.
Yours faithfully
Deloitte LLP
Chartered Accountants
Deloitte LLP is a limited liability partnership registered in England and Wales with registered number OC303675 and its registered office at 2 New Street Square, London EC4A 3BZ, United Kingdom. Deloitte LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu Limited ("DTTL"), a UK private company limited by guarantee, whose member firms are legally separate and independent entities. Please see www.deloitte.co.uk/about for a detailed description of the legal structure of DTTL and its member firms.
PART C
REPORT FROM MORGAN STANLEY AND UBS
The Directors
J Sainsbury plc
33 Holborn
London
EC1N 2HT
2 February 2016
Dear Sirs,
We refer to the Quantified Financial Benefits Statement, the bases of belief thereof and the notes thereto (together, the "Statement") as set out in Part A of the Appendix of this announcement, for which the Board of Directors of Sainsbury's (the "Directors") are solely responsible under Rule 28 of the City Code on Takeovers and Mergers (the "Code").
We have discussed the Statement (including the assumptions and sources of information referred to therein) with the Directors and those officers and employees of Sainsbury's who developed the underlying plans. The Statement is subject to uncertainty as described in this announcement and our work did not involve an independent examination of any of the financial or other information underlying the Statement.
We have relied upon the accuracy and completeness of all the financial and other information provided to us by or on behalf of Sainsbury's, or otherwise discussed with us, and we have assumed such accuracy and completeness for the purposes of providing this letter.
We do not express any opinion as to the achievability of the quantified financial benefits identified by the Directors.
We have also reviewed the work carried out by Deloitte LLP and have discussed with them the opinion set out in Part B of the Appendix of this announcement addressed to yourselves and ourselves on this matter.
This letter is provided to you solely in connection with Rule 28.1(a)(ii) of the Code and for no other purpose. We accept no responsibility to Sainsbury's or its shareholders or any person other than the Directors in respect of the contents of this letter; no person other than the Directors can rely on the contents of this letter, and to the fullest extent permitted by law, we exclude all liability (whether in contract, tort or otherwise) to any other person, in respect of this letter, its contents or the work undertaken in connection with this letter or any of the results that can be derived from this letter or any written or oral information provided in connection with this letter, and any such liability is expressly disclaimed except to the extent that such liability cannot be excluded by law.
On the basis of the foregoing, we consider that the Statement, for which you as the Directors are solely responsible for purposes of Rule 28 of the Code, has been prepared with due care and consideration.
Yours faithfully,
Morgan Stanley & Co. International plc and UBS Limited
