The two entrepreneurs bidding for Somerfield are expected to abandon their interest in the supermarket group after it rejected an improved offer of £593m yesterday.
John Lovering, a former head of the Homebase DIY business, and Bob Mackenzie, a former chief executive of National Car Parks, had made a conditional offer for Somerfield of 120p per share. This was a considerable increase on their previous price of 103p per share.
But the improved terms were still rejected by the Somerfield board, which said the bid "substantially undervalued" the company. The group also cited the long list of conditions attached to the bid as a reason for its decision. These included due diligence, backing from the board, financing and clearance from the Office of Fair Trading for the plans to sell a chunk of Somerfield's stores to J Sainsbury.
Sainsbury's was interested in about 150 Somerfield sites which it was keen to convert into its local convenience store format. Sainsbury's stressed yesterday that it had not been involved in the bid process and was simply a willing buyer of a package of stores had the deal been successful. It said it remained committed to the bid battle for Safeway.
A spokesman for Mr Lovering and Mr Mackenzie said: "We're a tad surprised at Somerfield's response. The financing was in place and we were confident we could have completed the deal by the end of next month."
The pair are now expected to walk away. "It's impossible to come back unless at a substantially higher price and it's impossible to drop the conditions of the bid," a source close to the bid group said.
Analysts said Somerfield was right to reject the offer. Paul Smiddy at Robert W Baird Securities said: "You could say that 120p looks expensive looking backwards. But looking forwards, it doesn't. The board is absolutely right to tell them to get lost."