KKR faces European hold-up in Safeway bid

A bid by Kohlberg Kravis Roberts for Safeway would be scrutinised by the European competition regulators in Brussels rather than the Office of Fair Trading in Britain, a procedure which competition lawyers say could see the US buyout specialist disadvantaged.

KKR's bid would not run to the same timetable as the other five bids for Safeway, which have all been submitted to the OFT.

In addition, KKR can only make its submission to the European Commission when it makes a formal, binding bid. It cannot submit an indicative offer as J Sainsbury, Philip Green, Wal-Mart and Tesco have done. So far only William Morrison has tabled a formal offer.

KKR is, therefore, under more pressure than other bidders to satisfy itself about Safeway's financial performance and the value of the assets. It must also have all the necessary £3bn-plus funding in place. The additional pressures explain why KKR is the only one of the six interested parties which has not yet made any submission to the competition authorities.

Chris Bright, competition partner at the legal firm Shearman & Sterling, said: "KKR's bid would be handicapped by coming under Brussels jurisdiction. It can't pre-clear any regulatory risks."

KKR must go through Brussels because of the scale of its European interests. The UK competition authorities only have jurisdiction over a case if two-thirds of both the bidder and the target company's European turnover is in the UK. This is the case in the other five bidders, but not KKR. The OFT can ask for the case to be passed back to them only if they believe the deal would lead to a dominant position in the UK market. This is unlikely to be considered the case with a KKR-Safeway.

KKR is understood to be relaxed about its bid being examined by Brussels as it is confident there are no competition problems. Followers of the bid say KKR is more likely to be concerned about the level of information provided about Safeway's business. Safeway's trading performance is seen as a potential stumbling block, particularly the costs associated with its "high-low" pricing strategy.