Asda may fall foul of OFT with Somerfield takeover

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The Independent Online

The office of Fair Trading (OFT) is expected to mount a detailed examination of a bid for Somerfield by Asda, according to leading competition lawyers, who believe there could be a strong case for a referral to the Competition Commission.

The office of Fair Trading (OFT) is expected to mount a detailed examination of a bid for Somerfield by Asda, according to leading competition lawyers, who believe there could be a strong case for a referral to the Competition Commission.

Asda, owned by Wal-Mart, has hired Lazard, the investment bank, to help it assess a potential bid for the high street grocer, which has already attracted an offer from Baugur, the Icelandic retailer. Baugur has teamed up with Apax and the property tycoon Robert Tchenguiz to examine a new offer for the grocery chain.

One lawyer, who requested anonymity, said: "The OFT will clearly be interested. I would be very surprised if they [Asda] get an easy run at the OFT. They must be thinking about standing a good chance of going back to Victoria House [the headquarters of the Competition Commission]."

Somerfield is valued on the stock market at just over £1bn and would represent a new direction for Asda, which has traditionally operated larger stores. Somerfield has failed to compete with larger rivals, such as Tesco and J Sainsbury, out of town so has focused on the high street.

The OFT's interest in any deal will depend on whether it defines Somerfield as operating superstores used for large, one-stop shops by consumers or whether it sees it operating largely convenience-type stores for top-up and impulse buys.

A spokeswoman for the OFT said: "Every merger is different. Everyone is looked at on its own individual merits." Somerfield controls 3.1 per cent of the convenience store market, as defined by Verdict Research, the industry analysts. Although that market was worth £43.4bn last year, it remains fragmented with the Co-op, the biggest player, controlling just 5.5 per cent.

Faced with increasingly restrictive planning rules, Tesco and Sainsbury's have been buying into the convenience market through acquisitions so far unchallenged by the competition authorities. According to Verdict, Tesco last year had 22.5 per cent of the total grocery market. Of this, 1.7 percentage points came from its so-called neighbourhood retailing. In 2000 it had 17.9 per cent, of which just 0.3 percentage points came from convenience stores.

Tesco has made a number of notable acquisitions in this area including those of T&S Stores and Adminstore, which included Harts, Cullens and Europa.

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