Supermarket group Wm Morrison, which last week received the go-ahead to bid for rival Safeway, may be forced to raise its offer to £3.5bn (€5bn), it was reported today.
Morrison sparked the takeover battle in January with a £2.9bn (€4.1bn) offer and is in pole position to land Safeway after the UK government blocked rival bids from the big three supermarkets – Tesco, Asda and Sainsbury’s – on competition grounds on Friday.
Morrison’s original all-share offer had the backing of Safeway’s board but their recommendation was later withdrawn as the high-profile bidding war took off.
Friday’s announcement by Britain's Trade and Industry Secretary Patricia Hewitt, which came with the caveat that Morrison would have to sell 53 Safeway stores, cleared the decks for a new bid from the Bradford-based retailer.
But according to a report in today’s Sunday Times, Safeway’s board is planning to tell Morrison that it needs to raise any new offer to around £3.5bn (€5bn) if it wants to win their backing this time.
Safeway declined to comment on the speculation today but it is thought that directors will argue that the merger would generate synergies of around £329m (€475m), while the sale of the 53 stores would bring in an estimated £600m (€860m).
While the original offer would have involved issuing Safeway shareholders with shares in the enlarged group, investors are also now thought to be keen for a cash element.
If Morrison does not sweeten its offer, it could run the risk that the Safeway board will refuse to recommend the deal to shareholders, a move which would force it to prolong the saga further by mounting a hostile takeover.
That could leave the family-run retailer exposed if Bhs owner Philip Green does decide to table his own offer for Safeway.
Mr Green has expressed interest in bidding for Safeway but has yet to table a bid and escaped the UK Competition Commission probe because he does not already own any supermarkets.
Meanwhile a report in The Observer claimed that Friday’s decision to block the big three from bidding for Safeway has left Sainsbury’s on bid alert.
The report said that Sainsbury’s fears that Philip Green could opt to make an offer for it rather than Safeway. Sainsbury’s declined to comment on the speculation.
Meanwhile, the requirement for Morrison to sell off 53 Safeway stores opens up some expansion opportunities for the big three. But other retailers will be queuing up to get their hands on the stores, with both Marks and Spencer and Waitrose thought to be interested in buying some.