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    Tesco Considers Bidding for UK Safeway

    LONDON - Britain's biggest supermarket group Tesco Plc on Wednesday joined its major rivals by considering a bid for the UK's fourth-biggest grocery chain Safeway Plc.

    LONDON - Britain's biggest supermarket group Tesco Plc on Wednesday joined its major rivals by considering a bid for the UK's fourth-biggest grocery chain Safeway Plc.

    Tesco said it was considering bidding a mix of cash and shares at a "compelling" level for Safeway shareholders.

    Chief Executive Terry Leahy told Reuters the move was not a spoiling tactic, though some market players suspected otherwise.

    "This is now the most contested bid we've ever had in the UK," said one analyst. "Tesco's move makes it more likely the whole industry is referred (to competition authorities). That could be all they are after."

    Industry executives believe Tesco's bid will fall foul of regulators as it is already way ahead of its rivals with a market share of nearly 27 percent.

    The acquisition of the UK's fourth largest grocer Safeway is a rare opportunity for expansion in an industry controlled by strict planning laws. The UK's consumer watchdog, the Office of Fair Trading, will be watching closely to ensure competition does not suffer.

    Tesco's move pits it against the world's largest retailer, Asda owner Wal-Mart Stores Inc., and rival J. Sainsbury Plc who are considering making offers for Safeway.

    U.S. investment firm Kohlberg Kravis Roberts & Co (KKR) and retail tycoon Philip Green have also expressed interest since William Morrison Supermarkets Plc, currently with a six percent market share, agreed a 2.59 billion pound ($4.2 billion) deal to buy Safeway two weeks ago.

    There may yet be other bidders, particularly private equity or overseas companies, analysts said.

    Leahy reckons Tesco could retain 75 percent of Safeway's 484 stores and avoid any local monopoly issues, while Sainsbury and Wal-Mart's Asda, the UK number two and three respectively, believe they could get away with much fewer forced disposals.

    Leahy said he thought it unlikely regulators would allow the four grocers to be reduced to three with a Wal-Mart or Sainsbury bid effectively crippling competition. But if Safeway was to be broken up, Tesco wants to ensure it gets in on the action and can pick up some stores in any auction.

    The industry was cleared of anti-competitive behavior by the UK Competition Commission in 2000, but it said Tesco was "only just short of a scale monopoly".

    Tesco said it hoped to make a formal submission to the Office of Fair Trading later this week, with the timing of any bid dependent on the review.

    The OFT usually decides within 35 working days whether to refer a takeover to the government which can then seek a full-blown inquiry usually lasting three months, according to Reuters.

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