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Wal-Mart's Asda seeks U.K. Safeway deal

/ Source: Reuters

Wal-Mart's U.K. supermarket chain Asda has approached Safeway Plc with an offer to buy 70 of its stores for close to two billion pounds ($3.48 billion), sources close to the situation said on Thursday.

"There has been an is very preliminary and there are a number of big regulatory hurdles," one source said.

Only smaller rival, William Morrison Supermarkets Plc, has been cleared by regulators to bid for the whole of Safeway, on condition that it sells Safeway stores to rivals as part of any takeover. If rivals want to buy individual Safeway stores they must have approval from the regulator.

The Office of Fair Trading on Thursday revised the number of Safeway stores Morrison would need to sell to 52, down from 53, if its bid is successful.

Asda and the two other supermarket rivals that were blocked from bidding for Safeway by UK competition regulators, Tesco and J. Sainsbury, have agreed with authorities not to buy any part of Safeway that would impede competition.

If Asda could appease competition regulators and win approval to buy the 70 stores its offer could be tempting.

It has bid close to two billion pounds in cash for 70 of Safeway's 480 stores. That could put pressure on Morrison which is likely to offer cash to sweeten its original all paper offer which valued the entire firm around 2.9 billion pounds.

Safeway and Wal-Mart declined to comment on the latest approach, but last month Finance Director Simon Laffin told reporters there had been no attempt to scupper any deal with Morrison and that it was up to the Office of Fair Trading to decide who could buy which stores, on a store-by-store basis.

Secretary of State for Trade and Industry Patricia Hewitt has made it clear the Safeway may not divest so many stores that it would cease to be a viable fourth competitor in the industry, making a large number of store sales to any of its rivals apart from Morrison, unlikely.

"The question is how much of Safeway would have to be divested for adverse effects to be triggered. The answer is only with the OFT," Laffin said at the time.

Safeway is expecting a formal bid from Morrison within weeks. The rival offer from Wal-Mart for part of Safeway might help squeeze out a more generous price and could be good news for Safeway shareholders though it might delay proceedings.

"They would not have made an approach without first having detailed discussions with the OFT," one source said of Asda's approach.

Tesco and Sainsbury among others, have put in bids for some of the Safeway stores to be sold by Morrison if its deal goes ahead.