Delta Two, the Qatari-backed investment fund stalking J Sainsbury, must bid for the supermarket group by November 8 or walk away, the Takeover Panel ruled yesterday, as new concerns arose over funding for the £10.6 billion bid.

Delta told Sainsbury’s on Thursday night that it needed to raise an additional £500 million of equity finance and that there was no certainty that the funding could be secured.

The “put up or shut up” edict from the panel means that Delta, which controls 25 per cent of Sainsbury’s shares, has only two weeks to decide whether to announce a firm offer or walk away for at least six months.

The fund is seeking the additional funding from the Qatar Investment Authority (QIA), which is estimated to have assets of $50 billion. Sources said that the money was not required to fund the basic takeover offer. It is thought that the extra cash is required partly to finance Sainsbury’s pension deficit and that the Qataris require more cash than had been thought. Delta is said have agreed to put up about £1.5 billion in cash and securities to gain the backing of the fund’s trustees. The bulk of the new money is required for working capital to cover higher interest rates and provide a “buffer” to support Sainsbury’s in the event of a price war with its rivals.

Sainsbury’s shares slid 18½p, or 3.2 per cent, to 565½p amid fears that a deal might fade away. Nevertheless, analysts said that Delta’s chances of raising new money looked good, given that it was not seeking an additional investor.

Sainsbury’s opened its books to Delta last month after the fund made an indicative approach of 600p a share in July. Due diligence began in September. General retail trading conditions have worsened since then, while the credit crunch has flattened financial markets A spokesman for Sainsbury’s said: “We are working actively together with a view to securing an offer which we believe is recommendable to shareholders. Discussions have been going on on a constructive basis, but we want to resolve this in a reasonable timetable. With this new information we felt it was important to keep the market informed.”

It had been thought that the stumbling block to any deal was that Sainsbury’s founding family, which has an 18 per cent stake, would not back Delta unless the investment fund reached agreement with the pension fund trustees. However, it appears that negotiations over the pension fund are merely one of a number of factors contributing to Delta’s need for additional financing.

A Sainsbury’s spokesman said that talks with the trustees, which have been rolling on for weeks, were “progressing constructively but not yet completed”.

The Takeover Panel normally allows a month’s grace under a “put up or shut up” notice, but the Sainsbury’s board is said to have been keen to get some clarity on the future of the business before the busy Christmas trading period.

The board is still optimistic that a deal can be reached with Delta, but believes that it is not in the interests of the business for talks to drag on much further.

Paul Taylor, Delta’s main adviser, will travel to Qatar next week to make his plea to the QIA.

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