Qatari fund Delta Two is close to reaching an agreement with pension trustees for a proposed 10.6 billion pound ($21.7 billion) takeover of J Sainsbury, sources close to the matter said.

Delta Two, already owner of 25 per cent of Sainsbury, could make a formal offer for Britain's third-largest supermarket group as early as the middle of next week, the sources said.

It is likely to agree a part-cash payment for the pension fund of around 1.5 billion pounds, they said. The fund has proposed an offer of 600 pence per share.

Spokesmen for Delta Two and Sainsbury's trustees declined to comment.

The Sainsbury family, who hold 18 per cent of the company, were prepared to block the bid if Delta Two failed to agree a deal with the trustees, one source familiar with the situation said this month.

The family torpedoed a 582 pence-a-share planned offer from a private equity consortium in April after talks with pension trustees collapsed, sources said at the time.

The takeover speculation surrounding Sainsbury during the past quarter has coincided with slower sales growth, a slowdown Chief Executive Justin King has attributed to volatile summer weather.

Sales excluding fuel at Sainsbury stores open at least a year rose 3.1 per cent in the 16 weeks to October 6, slowing from 5.1 per cent in the first quarter and an all-time high of 6.6 per cent in the second quarter last year.

A buyout by the Qataris is expected to further slow sales, with the potential new owners more likely to focus on profits rather than attracting customers through price cuts, according to analysts.

Marks & Spencer and Waitrose, followed by Tesco, have the most to gain from any weakness in Sainsbury's competitiveness, believes Berstein Research analyst Christopher Hogbin.

WM Morrison Supermarkets may also benefit from any Sainsbury store disposals under new ownership.Reuters