Somerfield rejects £510m takeover approach

Somerfield rejected a £510m takeover approach from entrepreneurs John Lovering and Bob Mackenzie yesterday saying it "substantially undervalues" the business.

The offer, pitched at 103p a share, was made last week and discussed by the Somerfield board yesterday. The company said the board had "concluded unanimously" that the offer was insufficient.

Mr Lovering, a former executive at the Homebase DIY group and Mr Mackenzie, a former head of National Car Parks, declined to comment but the pair are expected to make a statement today. Mark Hughes, a food retail analyst at Numis Securities, said: "I can't imagine that Lovering and Co won't come back with something else."

Somerfield's statement came after the stock market had closed. The shares had closed 0.5p down at 92.75p.

John von Spreckelsen, Somerfield's chairman, said: "The board considers that the price indicated fails to reflect the value of the business. Somerfield has strong brands in Kwik Save and Somerfield, a solid strategy for delivering value to shareholders and excellent prospects."

It was thought that the buyout team had planned to sell some of Somerfield's stores to J Sainsbury as a way of reducing the cost of the bid. Mr Lovering and Mr Mackenzie are being advised by Bridgewell Securities. HBOS has been cited as possible backers but the bank has not confirmed this.

Somerfield has about 5.5 per cent of the UK grocery market but its position has been under threat from the major players such as Tesco, Sainsbury's and Asda. It has been trying to improve its performance with new format Somerfield stores which offer more convenience store products. However, this market is also being invaded by Tesco, which has bought the T&S chain, and the Co-op, which acquired the Alldays business in October.