Cut-price Somerfield offered to rivals in bid to raise more cash

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The Independent Online
The Somerfield supermarket chain, whose shares are expected to open at a substantial premium on the stock market today, was offered for sale to rival supermarket groups last week in a desperate attempt to gain a higher price for the company.

Somerfield's advisers, Kleinwort Benson, contacted UK chains such as Sainsbury's, Tesco, Safeway and Asda to establish whether they would be interested. The sale price mentioned was slightly higher than the cut- price pounds 434m achieved through flotation. None of the supermarkets responded to Kleinwort's approach.

The action is seen as a last-ditch effort by Kleinwort Benson to establish that Somerfield could not have been sold at any other price or to any other buyer. City experts see the eleventh-hour approaches as a means of protecting the bank from potential litigation from Isosceles, Somerfield's original debt holders, for selling the company too cheaply.

The price of the shares was cut twice in the run-up to flotation, from 180p to 160p and then to 145p. City analysts estimate that they could start trading at 155p-165p today. Many feel the shares could reach 185p within a few weeks, fuelling concerns among the group's original backers that the price was set too low. "Kleinworts didn't get it away, they gave it away," one analyst said. Advisers were paid total fees of pounds 40m for the Somerfield flotation.

Two of the big four UK chains confirmed yesterday that they were asked if they would be interested in buying the former Gateway business. One said: "Kleinwort Benson came to us last week. But we rejected the approach point blank." It is understood that a price of 160p a share was mentioned.

A director of another big store group said it was contacted last week and was expected to provide an answer within seven days with very little financial information. "We just said no." The director said the group was unimpressed with the bank's handling of the float: "They haven't managed it very well."

Kleinwort refused to confirm or deny that it had approached potential buyers last week. It also denied that the action was an attempt to protect it from possible litigation.

"I'm not confirming anything. If you want to speculate, that's up to you," one source close to the float said.

Analysts criticised Somerfield's advisers for setting the initial price too high. "After the first price failed the institutions had them over a barrel," one said. "At this price these shares will have the lowest rating of any of the biggest 220 companies in Britain. And it has the fourth-highest yield. Is this company that bad? I think not."

Somerfield confirmed yesterday that just under 90 per cent of retail applications were confirmed. Around 16 million shares valued at pounds 23.3m will go to private investors.

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