Supermarket giant Sainsbury’s today sparked a bidding war for rival Safeway after detailing plans for a bid of more than £3.16bn.
The group said it was “considering” making an offer for the chain, which last week agreed a £2.9bn deal with Wm Morrison.
Chief executive Sir Peter Davis said Safeway’s decision to “relinquish its independence” offered the group an unique opportunity to expand.
Sainsbury’s board is believed to have been locked in talks ever since Bradford-based Morrisons’ shock move last Thursday.
A Morrisons-Safeway combination would catapult the enlarged group to number three in the food retail sector, just behind Sainsbury’s.
Reports over the weekend suggested Sainsbury’s had discussed the possibility of a joint bid with Wal-Mart, the US parent of ASDA.
Sir Peter said he had looked at the possibility of joining forces with Safeway over the past year.
He added such a combination would “offer more customers greater choice and a superior food proposition throughout the United Kingdom”.
Analysts are certain a bid from either Sainsbury’s or Wal-Mart for Safeway would face intense scrutiny from competition authorities. Sainsbury’s said it believed it would need to sell off 90 of Safeway’s 479 sites to “satisfy local competition issues”.
Any formal offer would be a combination of cash and shares in the enlarged Sainsbury’s business and price Safeway at over 300p per share.
The cash carrot could sway Safeway investors, given that Morrison’s £2.9bn takeover offer was an all-share offer.
Sir Peter said a deal with Safeway would generate cost benefits of at least £300m but conceded 1,700 jobs could go.
He added: “This is a wonderful opportunity for Sainsbury’s shareholders and Safeway shareholders and we believe we can generate real value out of this.”
Sainsbury’s intends to file a detailed merger proposal to the competition authorities next week.
Sir Peter took over at the group three years ago and is part-way through a recovery drive to close the gap on market leader Tesco.
Sainsbury’s lost the top spot in the food retail sector in the late 1990s and has since come under increasing pressure from ASDA.
Sir Peter said a deal with Safeway would help expand the Sainsbury’s business in the north, the Midlands and Scotland.
He added: “We believe the competition authorities have a good opportunity to work with us and other potential bidders to determine what they would like to do in terms of market structure now Safeway has decided to opt out.”
In a veiled dig at Morrison’s, he lauded the experience of the Sainsbury’s board in merger and acquisition activity.
Morrisons, run by its charismatic chairman Sir Ken Morrison, last made a major corporate takeover in 1978, buying eight stores for £1.2m.
Sir Peter made a string of deals when in charge of magazine publisher Reed and also bought Scottish Amicable when at Prudential.
He said: “I want to demonstrate that we have integration experience and in terms of scale we are well placed to handle this.”
He added that the Sainsbury family, which is believed to control around 35% of the group’s shares, backed the Safeway deal.
The move came as Sainsbury’s released Christmas trading figures showing sales rose 2.8% on a like-for-like basis in the 12 weeks to 4 January.
This compares with 6.4% growth in the same period a year ago but Sir Peter said the performance was “solid”.
Sainsbury’s shares were down 9p at 247p in early trading in the City.
Safeway was up 13.25p at 293p, a rise of almost 5%.
Analysts said they were certain Wal-Mart, which bought ASDA for £6.7bn in 1999, would now enter the fray and bid for Safeway.
Iain McDonald, retail analyst at Numis Securities, said he expected Wal-Mart to win a bidding war as it had the “deepest pockets”.
He added: “ASDA Wal-Mart has not declared its hand at the moment but I find any other outcome difficult to envisage.”
Reports at the weekend suggested the US giant may make its move tomorrow.
An ASDA spokesman said: “We don’t comment on market speculation.”
EGi News 13/01/03
