A proposal by Asda to buy 70 Safeway stores will not deter Morrisons from making a bid for the beleaguered supermarket group within days, according to industry sources.
Asda refused to confirm or deny the latest development, but sources close to the deal said it had put forward a preliminary plan to cherrypick 70 Safeway stores for £2bn.
Morrisons is expected to offer about £2.9bn for the whole of Safeway’s 479-store portfolio.
“Asda would love to buy 70
Safeway stores and £2bn would be a good deal if it could get the best 70 stores in the Safeway portfolio,” said one City analyst.
“The idea it could get 70 stores looks a little stretched. But in Asda’s situation what is there to lose?”
Earlier in the week, trade and industry secretary Patricia Hewitt announced she had accepted undertakings from Tesco, Asda and Sainsbury that they would not acquire the whole of Safeway, or any part of it, if it would give rise to adverse effects identified in the Competition Commission’s report. They are only free to bid for some of the 52 stores Morrisons has undertaken to divest - of these Asda is only free to bid for 12.
If Asda were to try to buy 70 Safeways, it would have to seek OFT consent and proceed by way of a public process to allow third parties to comment.
Analysts said this would be a long drawn out process and, because of the issues already raised by the Commission, was unlikely to succeed.
A source close to Morrisons said that if the proposal from Asda was serious, Safeway would have to make a Stock Exchange announcement, so any talks must be at a very preliminary stage. However, the consensus from the City was that Asda’s approach was just a lever to try and drive the price up of a bid from Morrisons.
“The offer could be a tool to encourage Morrisons to increase a bid to above 285p a share,” said one analyst. “Morrisons’ rivals clearly see it has potential to create value from acquiring Safeway.”
It was thought this latest development would not affect Morrisons’ bid price for Safeway. “It has the Commission in its corner,” said one analyst.
The DTI announcement on the undertakings means Morrisons has 21 calendar days to agree a bid with Safeway.
Morrisons originally undertook to sell 53 Safeways but the OFT has ruled it would not have to sell Towcester.
Sean McAllister