Sainsbury prepares rival £3.2bn bid for Safeway

Supermarket chain Sainsbury gatecrashed rival Morrison's agreed takeover of Safeway today with details of a rival £3.2 billion bid.

The group said it was considering an offer of at least 300p per share in a move that is certain to spark a bidding war in the sector.

Analysts believe Asda, backed by the might of its US owner Wal–Mart, will now declare its hand and trump both bids currently on the table.

The mounting speculation was enough to push Safeway shares up by 5 per cent in the City – its market value has soared 37 per cent in under a week.

Sainsbury chief executive Sir Peter Davis said the group had been looking at making an offer for Safeway for the past year to 18 months.

A merger between the two would bring more customers lower prices, greater choice and a "superior food proposition", he added.

He said: "This is a wonderful opportunity for Sainsbury's shareholders and Safeway shareholders and we believe we generate real value out of this."

A deal is also critical to safeguard Sainsbury's future role in a market that will be altered dramatically by Safeway's decision to sell up.

Morrison's £2.9bn all–share deal for Safeway would catapult the enlarged business to number three in the market above Asda Wal–Mart.

It would also mean Sainsbury's missing out on what is likely to be the last acquisition opportunity in the UK supermarket sector.

A deal between Sainsbury and Safeway, the fourth–largest group in the market, would instead create a business to rival leader Tesco.

While Sainsbury said it would have to sell 90 of Safeway's stores to satisfy competition authorities, the combined group would still have 870 sites.

Sir Peter also believes a tie–up would generate at least £300m of cost–savings and benefits, with 1,700 jobs likely to go.

He added the bid, crucially a part–cash and share deal, had the full backing of the Sainsbury family which controls 35 per cent of the group's shares.

Reports over the weekend suggested Sainsbury could join forces with Wal–Mart to carve up Safeway and protect their positions in the market.

But Sir Peter said the group had "decided to go it alone" and would file its merger proposals with the competition authorities next week.

The value of Bradford–based Morrison's bid has fallen in line with its share price since its agreed deal was unveiled last Thursday.

Analysts have raised concerns about the ability of Morrison's management team to integrate the Safeway business successfully.

Morrison, led by charismatic boss Sir Ken Morrison, declined to comment on its next move today but its shares continued to fall, down 2 per cent.

An Asda spokesman also refused to clarify its own position but some believe it could launch an all–cash bid in the City tomorrow.

Arkansas–based Wal–Mart, the biggest retailer in the world, bought Asda for £6.7bn four years ago and now operates in 10 countries.

Iain McDonald, retail analyst at Numis Securities, said he was convinced the US group will win Safeway as it has the "deepest pockets".

He added: "Asda Wal–Mart has yet to declare its hand but I find any other outcome difficult to envisage."

Sir Peter returned to Sainsbury three years ago to revive the business, which lost top spot to Tesco in the late 1990s.

A Christmas trading statement today showed sales rose by 2.8 per cent on a like–for–like basis in the 12 weeks to January 4

The growth figure, which strips out income from new stores, was just 1 per cent when the group also excluded takings on the petrol forecourt.

Sir Peter said the performance was "solid" and had to be viewed against a strong performance last year.

Sainsbury's bid for Safeway would be funded from "additional borrowings" and backed by investment banks UBS Warburg and Goldman Sachs.