Wal-Mart throws hat into ring for Safeway fight

US retail giant Wal-Mart made it a three-way fight for the UK’s fourth-largest supermarket chain today after revealing plans to enter the bidding war for Safeway.

Wal-Mart, which bought Asda in 1999, said it was considering an all-cash bid for the business and was seeking clearance from the British Office of Fair Trading.

Tony De Nunzio, president and chief executive of Asda, refused to be drawn on a price but said the US group had the “financial muscle” to attract Safeway’s shareholders.

Wal-Mart generated net sales of nearly $32bn (€30.24bn) in just five weeks to January 3, almost six times as much as the amount likely to be needed to bag Safeway.

Its widely-expected move came 24 hours after Sainsbury’s threw its hat into the ring by detailing plans for a £3.2bn (€4.87bn) part-cash part-share takeover bid.

Sainsbury’s 300p per share offer trumped the all-paper deal struck between Safeway and Morrison’s last week, the value of which has fallen from £2.9bn (€4.4bn) in line with Morrison’s share price.

Morrison’s deal stung its rivals into action and kick-started what looks certain to be a drawn-out battle for the last major acquisition opportunity in the market.

Tight UK planning restrictions make Safeway’s 479 stores all the more attractive for the three bidders as they slug it out to break Tesco’s stranglehold on the sector.

Asda has 256 stores in the UK and has been breathing down Sainsbury’s neck in recent months as Wal-Mart’s buying power helps it bring down prices and put more non-food products on to its shelves.

Mr De Nunzio said: “Getting stores in parts of the country where we are under-represented means we can meet the pent-up demand of people who want our everyday low prices.”

If Wal-Mart is successful in snaring Safeway the combined group’s market share would be close to Tesco’s 26.8% and leave Sainsbury’s a distant third with 17.4%.

Wal-Mart conceded it may have to sell some Safeway stores to satisfy competition concerns but Mr De Nunzio said it would be less than the 90 Sainsbury’s believes it would have to give up for a deal to go through.

The Office of Fair Trading will be the initial judge of what is allowed, but a deal could be referred to the Competition Commission by trade and industry secretary Patricia Hewitt.

Asda and Safeway discussed a tie-up five years ago but Wal-Mart gatecrashed the talks at the last minute. Speculation of a bid for Safeway emerged before Christmas.

Referring to the timing of Wal-Mart’s move, Mr De Nunzio said: “I think it’s relatively clear the business is up for sale so the time is now right for us to make this announcement.”

Safeway’s shares were down 3% amid speculation Wal-Mart may not match Sainsbury’s 300p per share bid and rely on shareholders preferring cash to shares in a combined business.

But Iain McDonald, retail analyst at Numis Securities, said: “There’s no detail in terms of what they are going to bid but we know they can outbid anybody anyhow.

“Sainsbury’s and Morrison’s will be as unsurprised as anyone else, particularly Morrison’s, which I’m sure got this process going knowing that Sainsbury’s and Wal-Mart were going to come in.”