Morrisons rejects Asda alliance in Safeway bid battle

William Morrison Supermarkets ruled out teaming up with Wal-Mart's Asda to launch a knockout cash takeover offer for Safeway yesterday in the event that a competition inquiry clears both bidders to proceed in the £3.5bn bid battle.

Bob Stott, the company's joint managing director, said: "We have no intention of making anybody else's bid successful." He said the group had set out last January to merge with Safeway, adding: "We would still like to do that."

The Government will rule later this month whether to clear either of the four groups fighting to acquire Britain's number four supermarket operator. A fifth bidder, Philip Green, has already been cleared on competition grounds.

Morrisons revealed that costs linked to the takeover bid, such as paying lawyers, had soared to £6.6m during its first half, adding to the £3.5m it absorbed in its last financial year. This was more than expected because the company had not originally bargained on being referred to the Competition Commission.

Mr Stott's comments came as the Bradford-based group reported a strong jump in first-half sales and profit growth, buoying its chances of success in the bidding war. Wm Morrison's shares rose 4p to 221p.

The company said the recent hot weather had helped total like-for-like sales growth to accelerate to 9.6 per cent in the first five weeks of its second half, from 9 per cent in the six months to 10 August. Excluding petrol, like-for-like sales rose by 9.1 per cent in current trading and by 8 per cent during the first half.

Analysts were impressed by Wm Morrison's trading performance, which outstripped the 6.3 per cent growth reported by Tesco earlier this week. Numis Securities nudged its forecasts for 2004 and 2005 higher to £313m and £330m respectively and raised its share price target.

Sir Ken Morrison, the group's chairman, said the "great deal of extra work" caused by the bid had not distracted Morrisons from the day-to-day task of running its business. Mr Stott added: "Our results show we can juggle and keep two plates spinning at one time. Hopefully this gives people the confidence that we can not only run Morrisons but Safeway as well."

The group said the takeover battle had raised its profile, especially in the South of England, attracting more shoppers to its stores. "It's encouraging that people who came into our stores out of curiosity back in January liked what they saw and kept coming," Mr Stott said.

During the first half, pre-tax profits rose by 10.2 per cent to £126.2m from £114.5m a year earlier, on sales up 14.8 per cent at £2.48bn. Despite the strong numbers, Sir Ken warned that competition remained "fierce", cautioning of "tough market conditions" to come as inflation returned to the food sector for the first time in years.