Wal-Mart trumps Sir Geoff with knockout bid for Asda

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The Independent Online
THE SURPRISE pounds 6.7bn agreed bid for Asda by Wal-Mart of the US could lead to a re-run of the 1970s supermarket price war and push other grocery retailers into mergers and crossborder deals, City analysts said yesterday.

Analysts said Safeway was now effectively "up for grabs", with Ahold of Holland mentioned as a possible merger candidate. The deal will also be a test for Tesco's move upmarket: "They could revert to their pile- it-high, sell-it-cheap philosophy, though that would be a huge gamble," one analyst said.

The new competitive threat is a blow to Sainsbury's, which has been struggling with poor sales growth for the last few years and earlier this month launched a major corporate shakeup to improve its performance.

Wal-Mart's bid for Asda is the largest foreign takeover of a UK retailer and the biggest move the sector has seen in decades. It is expected to spark a fierce bout of price competition in a sector already being investigated by the Competition Commission for alleged profiteering. Richard Hyman, of retail consultants Verdict Research, said the sector would "never be the same again".

The Wal-Mart deal is also a blow to Kingfisher, as it breaks up its planned pounds 17bn merger with Asda. Wal-Mart's cash offer is priced at 220p a share, a 19 per cent premium to the closing Asda price on Friday and an all-time high for the shares. It is also at a significant premium to the 186p value implied by the Kingfisher terms.

Kingfisher said yesterday it would leave its merger proposal open in case the Wal-Mart deal hit problems, but said it would not be improving its terms. This effectively leaves its deal dead in the water, analysts said.

Sir Geoff Mulcahy, Kingfisher chief executive, said he was "disappointed" by the turn of events. "It was not a `must do' deal. But we felt it was a good one for both sets of shareholders and would have given Asda's investors a slice of the action." He said Kingfisher would pursue its pan-European expansion but would not comment on the possibility of a deal with another food retailer.

Archie Norman, Asda's chairman, said discussions with Wal-Mart had only started in the last week to 10 days. He said he had telephoned Sir Geoff yesterday morning to inform him of Asda's decision to back the rival bid.

Scotching suggestions that the talks with Kingfisher might have been a way to flush out Wal-Mart, Mr Norman said: "We were genuine in our decision to merge with Kingfisher. But Kingfisher understands that we have to do the right thing for our shareholders, our customers and colleagues [staff]. We believe this is the right deal at the right price, at the right time."

Richard Perks of Retail Intelligence said the deal was a "double whammy" for Kingfisher. "On the one hand their deal with Asda has fallen through, and now they also have a major new competitor."

Wal-Mart's advisers, Dresdner Kleinwort Benson, moved swiftly in the market yesterday to buy almost 10 per cent of Asda's share capital. Asda shares soared by 18 per cent to 218p: Kingfisher closed down 45p at 778p.

Wal-Mart said it had long been impressed by the Asda management and would leave them in charge of the company. Allan Leighton will remain as chief executive. Archie Norman will stay on as chairman in the integration period but is then expected to leave. It is not yet clear whether any of the Asda executive will join Wal-Mart's board.

Asda has copied many of its successful initiatives from Wal-Mart, including the trading philosophy of "every day low prices", staff schemes such as encouraging share ownership and the reference to workers as "colleagues".

Wal-Mart was founded by the late Sam Walton in Bentonville, Arkansas in 1962. It has grown to become the world's largest retailer and a feared competitor. It recorded profits of pounds 5bn last year on sales of pounds 85.5bn. With a market value of pounds 118bn, it is the fourth-largest company in the United States.

Asda was on the brink of collapse in 1992 when Archie Norman joined as chief executive. It has recently overtaken Safeway as Britain's third- largest supermarket group. Last year it recorded profits of pounds 436m on sales of pounds 8bn.

Outlook, page 19

1962 Two brothers, Sam and James "Bud" Walton open the first Wal- Mart store in Rogers, Arkansas.

1970 Wal-Mart, with 18 stores and sales of $44m, goes public.

1980 Wal-Mart has 276 stores and sales of $1.2bn.

1983 Opens Sam's Wholesale Club - cash-and-carry warehouse stores for members only.

1987 starts Hypermart*USA as a joint venture with Dallas-based supermarket chain Cullum Companies. The 200,000 sq ft Hypermarket features bank branches, fast-food outlets and playrooms.

1988 Sam Walton steps down as chief executive officer, replaced by Davis Glass.

1990 Buys the US grocer-cum-retail distributor McLane Company; launches Bud's Discount City.

1992 Sam Walton dies: forms joint venture with Mexico's largest retailer, Cifra.

1994 Buys 122 former Woolco stores in Canada.

1995 Co-founder Bud Walton dies.

1997 Makes its first direct investment in a foreign partner by acquiring control of Cifra in Mexico: closes most of its 61 poorly performing Bud's stores: buys the German chain Wertkauf, with 21 hypermarkets.

1998 Buys Lojas Americanas' 40 per cent interest in their joint venture in Brazil: buys four stores and extra sites in South Korea from Korea Makro: creates half-sized grocery stores Wal-Mart Neighborhood Market, known as "Small Mart".

1999 Buys 74 Interspar hypermarkets in the US: H Lee Scott - a 20-year veteran at Wal-Mart - is named as chief operating officer and chief executive- designate: settles litigation with Amazon.com over allegations of stealing distribution methods: bids pounds 6.7bn for Asda.

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