Waiting game in prospect for Safeway bidders
Full investigation would favour Wal-Mart bid
March 14 2003
The UK government seems likely to order a full investigation of all five potential bidders for supermarket chain Safeway.
he Office of Fair Trading is due to announce next week which of the bids would face a full inquiry by the Competition Commission, based on a recommendation already made by the OFT to the Department of Trade and Industry.
Several sources close to the situation have briefed City analysts and journalists indicating that the impact on consumers and suppliers of any reduction in competition, as well as the potential political fallout, means that all the bidders will be referred to the Competition Commission.
However, there remains the possibility that Morrisons, the number five supermarket operator with a significantly smaller market share than Safeway, could still get the go-ahead to proceed with its tabled bid without a full inquiry.
The combination of Morrisons and Safeway would create a stronger fourth placed company to compete with Tesco, Sainsbury’s and Wal-Mart-owned Asda, and is thought to be the government‘s favoured option. If Morrisons avoids a referral, it is likely that a possible bid from Bhs and Arcadia owner Philip Green would also be nodded through, as Green has no current interests share of the supermarket sector.
The dilemma facing Safeway shareholders will then be whether to accept an offer from Morrisons or Green straight away, or to hold out for a potentially higher bid from one of the referred players. In that event, Morrisons is thought to be considering adding a cash element to its all-share offer to tempt Safeway shareholders.
If all the bidders are referred, the consensus is that the bidding process will favour Wal-Mart. The world’s biggest retailer has deep pockets, and will be best placed to keep Safeway shareholders on- side with the promise of a high cash bid once the referral process is complete.
