Financial and property firms line up for Safeway break-up

Click to follow

Several takeover groups are being formed to mount break-up bids for Safeway depending on the findings of the Competition Commission investigation into supermarket prices.

Several takeover groups are being formed to mount break-up bids for Safeway depending on the findings of the Competition Commission investigation into supermarket prices.

Financial buyers and property companies are playing lead roles in forming the various consortia which are at an early stage of development.

No figures have yet been attached to the potential bids. However, City analysts have forecast that any bidder would need to pay around 400p per share for Safeway, which is Britain's fourth-largest supermarket group. This would value Safeway at around £4bn.

If the various groups do make a move it is thought that J Sainsbury would almost certainly seek to become involved. Sainsbury's would be interested in buying Safeway stores in Scotland and the North-east of England where it is under-represented. ]

Waitrose, part of the privately owned John Lewis Partnership, may also be interested, as would Tesco The venture capital groups could sell off all the stores to trade buyers though it is possible they may seek to trade a rump of the stores.

Possible financial buyers would include Kohlberg Kravis Roberts which bought out the Safeway stores in the US in the early 1990s before selling its remaining stake two years ago. Nomura International, the Japanese bank which has been buying undervalued assets from pub chains to the Millennium Dome, could also be interested.

Asked about the possibilities of a bid Safeway said: "We do not comment on market rumour and speculation."

Safeway shares have been rising strongly in recent months due to a combination of bid speculation and a sales recovery inspired by new chief executive, Carlos Criado-Perez.

Much of the speculation has centred on a possible outright bid from Asda, now owned by the US giant Wal-Mart, or possibly Tesco.

However, Wal-Mart is thought to have its hands full with problems in its struggling German operation. Tesco would almost certainly run into regulatory problems if it tried to buy the whole of Safeway as it is already the market leader.

Making a consortium bid would be a way of getting around competition concerns with parcels of Safeway's 484 stores sold off to various supermarket rivals.

The bidders' next move will depend on the outcome of the Competition Commission investigation into supermarket prices. The commission submitted its report to Stephen Byers, the Secretary of State for Trade and Industry on Monday after an 18-month inquiry. Mr Byers is expected to make his ruling in September or October.

It is thought that the commission is not positively disposed to further industry consolidation and would like consumers to have the choice of five major supermarket groups.

However, if its conclusion and Mr Byers' recommendation is too draconian the major supermarkets are expected to seek a judicial review of the decision. This would extend the industry's period in limbo.

It is possible the regulatory authorities may look more kindly upon a consortium deal which would benefit a number of existing players.

Many City analysts believe Safeway will fall to a bid before long. One said yesterday: "A consortium bid would make sense and anyone that would be interested would have to be doing the groundwork now to be ready for Byers' decision. Safeway has been ramping up the company for sale."