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EDITIONS
 Monday, 13 January, 2003, 17:04 GMT
Sainsbury poised for Safeway bid
Safeway store
Who will Safeway's new owners be?
Supermarket chain J Sainsbury has said it is considering a bid for rival Safeway, in an attempt to scupper last week's bid by Morrisons.

This is a serious move

Sir Peter Davis, Sainsbury's chief executive
Sainsbury said its offer would value Safeway at about 3.2bn ($5.15bn) and would be a mix of cash and shares.

Safeway announced on Thursday that it had agreed to be taken over by Yorkshire-based Morrisons in a deal worth 2.9bn ($4.7bn) at the time.

Sainsbury's store
Sainsbury says it will shed 90 stores to satisfy competition authorities
But the value of the bid has since decreased because Safeway would be bought with Morrisons shares, which have fallen in value since the deal was announced.

Safeway shares closed on Monday a further 23.75p higher at 303.5p, shares in Sainsbury ended 14.25p lower at 241.75p, while Morrisons stood closed down 5.5p at 185p.

Safeway chiefs said that, following the Sainsbury statement, they would make further announcements "as and when appropriate".

Cost savings

"This is a wonderful opportunity for us," Sainsbury's chief executive Sir Peter Davis told BBC Radio 4's Today programme.

Safeway's shareholders may prefer a lower offer from Morrisons because it is unlikely to run into monopoly problems

Jeff Randall, BBC business editor

"We've been looking at it for over 12 months.

"We've had discussions in depth in the autumn and right up to Christmas with Safeway and we would very much like to do this.

"This is a serious move," he added.

Sainsbury said it had identified at least 300m of cost savings it could make from combining the businesses.

It added that 1,700 jobs were likely to be shed if the deal went through.

Competition questions

However, a proposed tie-up between Sainsbury and Safeway could be blocked by the Competition Commission.

With Sainsbury's market share estimated at 18% by the ONS Retail Knowledge Bank, and Safeway's at 11%, any deal would take the combined entity over the 25% the government regards as the limit for reasonable competition.

Annual turnover - latest available figures
Tesco: 21.7bn
Sainsbury: 14.9bn
Safeway/Morrisons: 12.6bn
Asda: 10bn
But Sir Peter said he thought Sainsbury could overcome competition objections by shedding 90 stores.

"There are some regulatory problems," he told the BBC.

"Although we would like the whole of Safeway, we recognise that there are overlaps of 90 or so stores.

"We would like to work with the competition authorities and agree a proposal whereby it strengthens our position in the North and Midlands and Scotland, and allows Morrisons and perhaps Asda to strengthen themselves in the South."

Higher sales

News of Sainsbury's intentions was announced as the group released trading figures for the 12 weeks to 4 January.

Sainsbury said underlying sales at its UK supermarkets - which excludes the effects of new store openings - had risen by 2.8%, but excluding petrol sales growth was only 1%.

It added that the new Nectar loyalty card, which was introduced in September, now had 11 million active users and would help "drive future sales growth".

Sainsbury said that it was now looking to develop its non-food offerings, and that customers would begin to see the difference later this year.

More bids?

Wal-Mart, the US giant that owns Asda, is seen as another potential suitor.

Last week it was reported that Wal-Mart and Sainsbury were considering a joint bid for Safeway, but this approach has now been abandoned.

Analysts said that if Wal-Mart did enter the bidding war, its financial strength was bound to make it favourite to win the battle.

"Asda Wal-Mart has not declared its hand at the moment but I find any other outcome difficult to envisage," said Iain McDonald, retail analyst at Numis Securities.

New retail force

If Morrisons did buy Safeway it would create the third largest supermarket group in the UK.

The two chains combined would have 598 stores, a turnover of 12.6bn and a market share of 16%.

With Morrisons strong in northern England, and Safeway focused on Scotland and the south of England, the two firms say their operations would be complementary.

  WATCH/LISTEN
  ON THIS STORY
  The BBC's Jeff Randall
"Suddenly Safeway is the special offer everybody wants"
  Sir Peter Davis, Chief Executive, Sainsbury
"This is a wonderful opportunity for us"
  Richard Hyman, Retail analyst
"It will be pretty good for the consumer whoever wins this"
See also:

13 Jan 03 | Business
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