Safeway's chairman, David Webster, has found it impossible to put the lid on the whirlwind of speculation. Publicly he insists there's nothing in it, that Safeway has a clear independent strategy for the future. Privately he must be painfully aware of the bind Safeway finds itself in.
To be number four in any market is almost always a deeply uncomfortably position; in supermarkets, a mature and cut-throat business if ever there was one, it is doubly so.
With little room left for expansion in sales of groceries, and planning permissions for new superstores in short supply, the main players have no option but to attack each other in their search for growth. As the smallest and most vulnerable of the top four, Safeway is bound to get progressively squeezed in this game of robbing Peter to pay Paul. This would be the case even if there hadn't been some basic errors at Safeway in supply and systems. These have made matters much worse, allowing the company to be trounced in the pecking order by the once beleaguered Asda.
Safeway claims it is now on top of these problems, but just look at it this way. Its sales per square foot are significantly lower than those of Sainsbury and Tesco. In theory, this should give substantial scope for growth; if Safeway could get anywhere near the customer traffic of the other two, its profits would rise exponentially.
The trouble is, this just ain't going to happen. In this business, anyone with relatively low sales per square foot either has to stock goods for longer than its competitors, inevitably leading to bigger stock write- offs than others incur, or has to have much better just-in-time delivery systems. Again, the cost of providing this puts you at a competitive disadvantage. An average Safeway store does not have as big a selection of produce as a Tesco, and that's because, without very heavy investment, it cannot afford to. And so on and so forth.
Make no mistake about it, Safeway is financially healthy and continues to make good profits. It is not like Kwik Save, which was slipping into the sea before it merged with Somerfield. Even so, the City is convinced Safeway is set on a path of long, slow decline. In the absence of bid hopes, there would be little support for the shares.
So what's going to happen? Even if top executives could agree on a division of top posts, a straight merger with Asda or either of the big two would almost certainly be barred by the competition authorities. But since when did the Office of Fair Trading get in between an investment banker and his fee? There are plenty of ways to skin a cat. Certainly the City is busy dreaming them up. Since the collapse last September of merger talks between Safeway and Asda, there have been talks between Asda and Sainsbury about a joint bid. This would have seen the two divide up Safeway's stores in a way which would avoid the kind of local monopoly problem that would occur if one or other subsumed Safeway in its entirety. These talks too foundered some little while back.
So what about plan C? This would have a property company make the bid and then sell off the stores piecemeal; 40 to Asda, 60 to Sainsbury, 30 to Somerfield, and so on. The man City insiders believe daring and ambitious enough to attempt this would be John Ritblat of British Land. He knows as much as there is to know about the buying, selling and renting of retail property. He recently signed a near pounds 1bn sale and leaseback transaction with Great Universal Stores. But could he pull off such an audacious plan?
I want to stress again that Safeway is not in any way sick. Indeed there are definite signs of a slight spring in the step right now. But by the same token there appears to be no big idea, nothing that distinguishes and differentiates it from its main competitors, and in these circumstances it is hard to see how the company can adequately challenge the competitive pressures described earlier. So once again, what's the end game?
I've got a special interest in this question because I feel that somehow I was in at the start of this enterprise. One of my first jobs as a financial journalist was to go to a results presentation for Alpine double glazing. I don't know what became of that company, but at the time it was part of the galaxy of businesses and investments that surrounded Jimmy Gulliver and his associates, of whom the most important were Alistair Grant, David Webster and their ever-faithful investment banking hound, Angus Grossart. Set against some of the fusty old types who ran British publicly quoted companies in those days, they were like a breath of fresh air - switched on, accessible and with a can-do mentality that made you know they were going places.
Their other big interest was Argyll (named after Mr Gulliver's county of birth), which they were building through a hectic series of takeovers into a substantial company. Within five years, Argyll had established enough of a presence and investment following to be able to mount a pounds 2.3bn bid for Distillers. I can still recall the circular with which they launched their assault. It was a vicious, utterly damning and unforgiving attack on the management record and performance of this sprawling scotch whisky combine. It destroyed John Connell, Distillers' gentlemanly chairman. He said of it; "Maybe I was naive, I didn't realise people would ever say things like that about their rivals in public."
In the end, Argyll was cheated out of the Distillers bid prize by Ernest Saunders at Guinness. Jimmy Gulliver was among the many casualties of that great takeover battle. His colleagues held him partially responsible, I think probably unfairly, for the failure of their bid and after a suitable period he was required to leave the group. Alistair Grant and David Webster turned their attention instead to the acquisition of the British end of Safeway from its American parent. Until Asda overtook them a few years back, the City had only praise for the way they handled this business. Such are the vicissitudes of corporate life. With the vultures now hovering, David Webster and his team find themselves in a boat not dissimilar to John Connell and his golfing partners at Distillers in the mid 1980s. I'd like to believe Safeway has a cracking future ahead of it, but whatever happens, it seems unlikely it will be under this management.