Safeway soars as supermarket rivals mull counterbids

Shares in Safeway soared again yesterday on speculation that it would be the subject of a bid battle after its agreed £2.6bn takeover by William Morrison Supermarkets on Thursday.

The shares closed 9 per cent higher at 279.5p, well above the 251.5p offer price.

Morrison shares rose 6 per cent to 190.5p as the City bet that the Bradford-based group could find its deal trumped by rivals.

J Sainsbury is said to be working on a bid, possibly in conjunction with private equity firms. The US buyout specialist Kohlberg Kravis Roberts was one name mentioned along with Royal Bank of Scotland Private Equity. But RBS is one of Safeway's bankers and the supermarket group said yesterday it had received "categoric assurance" that the Scottish bank was not working on a deal.

City insiders said Sainsbury's was talking to finance houses with a view to setting up a venture capital-backed shell company that would bid for Safeway with a view to selling the stores on to Sainsbury's.

Wal-Mart is still seen as the other possible cash bidder. But retail insiders say it would bid alone and not with Sainsbury's. "Sainsbury's has burned its ticket with Wal-Mart," one said.

Meanwhile, Sir Ken Morrison, Morrisons' chairman, was already back in Bradford yesterday, though meetings with institutional investors are being planned next week.

Mike Bishop, at Morley Fund Management, which holds 1.8 per cent of Morrison's shares, said: "This was a massive surprise to a lot of shareholders. Everyone has a fantastic regard for Ken. But the execution risk is something that will worry us and others."

John Hatherly, at M&G, which holds 1.5 per cent of Morrisons' shares, said: "It comes down to trust. Do you believe they have as much ability with integrating new stores as they have with the existing business. It's an act of faith."

Though several analysts downgraded their stance on Morrisons' shares today, one retail executive painted a different picture: "Ken holds all the cards," he said: "It's a great deal because he's got all the synergies and all the PR as he can say prices [in the shops] are coming down. This is not about who's got the most money. It's about who can get it through the Competition Commission."