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 Friday, 17 January, 2003, 22:31 GMT
Safeway suitor drafts in ex-Asda man
Safeway store
Safeway has a growing list of potential buyers
The US venture capital firm plotting a bid for supermarket chain Safeway is reportedly being advised by former Asda chairman and Conservative MP Archie Norman.

According to the Financial Times' website, Mr Norman wants to team up with Allan Leighton, who was his chief executive at Asda and now runs the Post Office, if Kohlberg Kravis Roberts (KKR) goes ahead with a cash offer for Safeway.

Earlier, the US venture capital firm confirmed its interest in the retailer and said it is considering making an offer.

KKR is understood to want to bolster Safeway's existing management team with advice from Mr Norman and Mr Leighton.

Customer choice

The firm will join a long list of companies keen to get their hands on Safeway, following an agreed offer from the relatively small supermarket chain William Morrison last week.

Since then, rivals Sainsbury's and Asda's US parent Wal-Mart have also confirmed their interest although neither has made a formal bid.

Morrisons shopper
9 Jan Morrisons offer
13 Jan Sainsbury's confirms interest
14 Jan Wal-Mart confirms interest

KKR said its interest in Safeway was still at an early stage and that there was no guarantee it would lead to a formal offer.

Its approach was widely expected after press reports suggested KKR would offer about 3bn for the supermarket chain, the majority of it in cash.

But analysts have suggested it will only bid if the other supermarkets' attempts are blocked by the Competition Commission.

The John Lewis retail group, which owns the Waitrose supermarket, said any of the supermarket bids for Safeway would be detrimental for shoppers because it would reduce choice.

"The proposed take-over of Safeway raises major concerns about the increased concentration of market power of the companies bidding for its acquisition," said the group in a letter to the Office of Fair Trading (OFT).

But Waitrose also said it would be interested in buying some of the Safeway shops put up for sale in the event of a break-up of the portfolio.


KKR specialises in taking over what it sees as underperforming companies and typically running them for between five and seven years, then selling them on.

The New York-based firm is probably best known for its record $31bn buy-out of the US food group Nabisco in 1989.

We're waiting for firm bids from Sainsbury and Wal-Mart....then we're in the hands of the competition authority

Iain MacDonald, Numis Securities

In an interesting sub-plot to the whole Safeway saga, the retailer's broker CSFB announced they could no longer fulfil this role as they were acting as advisers to KKR.

A spokesman for CSFB told BBC News Online that any inference that the bank had 'ditched' Safeway for a more profitable rival was unfounded.

The bank has advised KKR since the 1990s on a number of deals, including the US group's recent acquisition of the French retailer Legrand.

Break up

The spokesman said the most likely scenario would be for KKR to step in with a bid if the competition authorities rule against an offer from a rival supermarket chain.

"KKR probably can't pay as much, but then it won't have the regulatory issues," he said.

He added that KKR would not, contrary to press reports, look for a quick sale of Safeway's portfolio.

"It probably can't make enough money breaking it up," he said, suggesting instead that it would be run "and improved" for three years, then sold off.

Retail analyst Iain MacDonald at Numis Securities said:

"We're waiting for firm bids from Sainsbury and Wal-Mart so we can get an idea of where they're going to come in, and also now from KKR.

"Then we're in the hands of the competition authorities."

Join the queue

The bidding for Safeway was sparked by Morrisons' all-share offer last week.

But the value of this bid, about 2.9bn at the time of the announcement, has since decreased as the value of Morrisons shares has fallen and rival supermarkets entered the fray.

Sainsbury, the UK's second largest food retailer, said its offer would value Safeway at 3.2bn though a mixture of cash and shares, while Wal-Mart said it was thinking of making an all-cash offer for the group.

Safeway shares have climbed almost 100p since the bid speculation began, although gave up some gains on Friday. They were down 6p at 301p in mid-morning trade.

Second time round

This is not the first time KKR has been interested in Safeway.

In 1986, it bought the US Safeway chain, which had been the parent of the British group, for $4.8bn (3bn).

In 1990, KKR took the group public and sold off its shareholding gradually over the following nine years.

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14 Jan 03 | Business
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