Analysts are predicting that bidders for supermarket chain Somerfield will probably run the chain as a going concern, despite the unrealised value of the company’s property portfolio.
The company’s property assets are valued at £983m.
Bids for Somerfield submitted by Iceland-owner Baugur and a consortium led by former Homebase and Odeon Cinema chairman John Lovering, are thought to be around £500m.
But analysts agree that it is unlikely any bidder would want to buy the chain for the property. “There is value there, but it’s not what I would describe as a jewel,” one property analyst said.
Bristol-based Somerfield, Britain’s sixth largest supermarket chain, operates 588 Somerfield stores and 686 Kwik Save stores.
While the other large grocers – such as Tesco, Sainsbury’s, Asda and Morrison’s – could pick some of the larger pieces up, they are unlikely to bid as they are tied up by their bids for Safeway.
Richard Ratner, retail analyst at Seymour Pearce, points out that the freeholds in the portfolio and the absence of debt make it superficially an attractive option.
“But a lot of the stores would not be very desirable for other players. It’s unlikely that the chain could be broken up and sold to the other big stores. Somerfield has had to sell its big out of town sites, which is what the other supermarkets are after, ” he said.
Like many in the sector, he expects the purchaser to be a financial buyer who will not want simply to asset strip.
“There are assets there, it is possible that a financial buyer could raise cash with a few sale and leasebacks – but you could borrow at less from the bank than you would get from a sale and leaseback of a Kwik Save store.”
In November Somerfield agreed the sale-and-leaseback of two distribution centres in the North of England, one for £37.6m to Prudential and one to Royal Sun-Alliance for £21.4m.
Shares in Somerfield rose by more than 20% after the retailer confirmed that an approach had been made on Friday.
In a statement released on Monday, Somerfield said that “it received a proposal on Friday 11 April 2003 relating to a possible offer for Somerfield. The proposal is subject to a number of conditions and it is uncertain whether an offer will ultimately be made.”
References: EGi News 16/04/03
