Wal-Mart to make £6bn bid for Boots

US group poised for new high-street offensive

Wal-Mart, the giant US supermarket chain which last year acquired Asda, is considering its second assault on the UK with a £6bn bid for Boots.

Wal-Mart, the giant US supermarket chain which last year acquired Asda, is considering its second assault on the UK with a £6bn bid for Boots.

Wal-Mart is understood to have told its advisers to evaluate a takeover of the health and beauty retailer, whose share price is languishing close to a five-year low. The slump in Boots' share price has in large part been caused by the arrival of Wal-Mart, which is threatening to eat into the cosy profit margins the Nottingham- based retailer has long been able to charge. In addition, Wal-Mart would be able to acquire Boots for almost half the relative sum the group was forced to pay for Asda.

The acquisition of Boots, whose stores are found predominantly in high-street locations, would mark a new departure for a company that has become synonymous with gigantic out-of-town outlets. However, it would also reflect Wal-Mart's increasing exasperation at its failure to make its mark in the UK. Frustrated by the constraints of British planning permission laws, Wal-Mart has so far opened only one new store in the UK. This has fuelled speculation that the only way in which Wal-Mart can achieve its ambition of becoming Europe's largest retailer by 2004 is via the British high street.

A bid for Boots would give Wal-Mart access to the larger out-of-town stores of Boots' Halfords subsidiary, which could be converted into supermarkets without the need for local authority consent. In the past, the chain most frequently tipped to be Wal-Mart's next target has been Safeway, which has the sort of store profile that would suit its ambitions. Either way, Wal-Mart is likely to proceed only with an agreed deal rather than embarking on a hostile takeover bid.

Philip Dorgan, retail analyst at WestLB Panmure, said: "Wal-Mart is finding it tougher than it thought in the UK and it needs a follow-through, another business to generate the cost savings."

One senior corporate financier said that the impetus for an acquisition was more likely to come from Allan Leighton, the British-based president of Wal-Mart Europe, than from Wal-Mart's American head office in Arkansas.

Boots has responded to the threat from Wal-Mart by diversifying further into the service sector, with the provision of new health and beauty treatments. It has also been forced to scale back its European ambitions, last week announcing the sale of its stores in the Netherlands to Ahold, the Dutch retailer. However, the company's share price has failed to respond, closing on Friday at 501p, compared with its 1998 high of 1070p.

Wal-Mart does have other options in its quest for European dominance. In Germany, it has been linked with a bid for Real, Metro's hypermarket chain. Wal-Mart already has a presence in the country, although its penetration has been handicapped by the notorious fussiness of German shoppers. Lee Scott, Wal-Mart's chief executive, recently admitted that the performance of its German operations had been disappointing.

The crossroads Wal-Mart has reached in the UK comes at an equally testing time for the company in its home market. Ten days ago it issued a profits warning, an announcement that triggered a 7 per cent slide in its shares.