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 Wednesday, 22 January, 2003, 17:58 GMT
Tesco joins battle for Safeway
Safeway store
Safeway has a growing list of potential buyers
Tesco has confirmed its interest in the bidding for supermarket group Safeway, becoming the sixth company to join the fray.

Tesco, the UK's biggest supermarket chain, said its offer would be a mix of cash and shares, and would be "compelling" for Safeway shareholders.

The bidders
Morrisons
Sainsbury
Philip Green
Kohlberg Kravis Roberts
Asda/Wal-Mart
Tesco
Although Tesco already has a 27% share of the food retail market in the UK, it believes it could keep 75% of the Safeway portfolio and avoid any regulatory issues.

When the UK's competition watchdog last examined the state of the UK grocery market, it said that no one player should have a market share of more than 25%.

Circling Safeway

This is not a spoiling tactic, it is a serious move

Terry Leahy, Tesco chief executive
But market share is just one of the competition criteria the authorities will be looking at, and Tesco may hope that it can add to its portfolio in areas where it has no presence at all.

Tesco joins a long line of suitors currently circling Safeway. The relatively small chain Morrisons sparked the bid-war two weeks ago with an agreed takeover offer.

Since then rivals Sainsbury and Asda's US parent Wal-Mart have also expressed an interest, followed by the US buy-out firm Kohlberg Kravis Roberts (KKR).

Earlier this week, the retail entrepreneur Philip Green said he was considering a cash offer for the group.

Fighting off the big boys

This is now set to be one of those landmark takeover battles - a rare contest that will change forever one of our biggest industries

Declan Curry
BBC business presenter
So far only one firm offer is on the table, the agreed bid from Morrisons.

When Tesco declared its hand, Morrisons responded by saying that its own offer would be best for Safeway's customers, suppliers, employees and shareholders.

"It does not surprise me that Tesco is joining Wal-Mart/Asda and Sainsbury in pursuit of Safeway," said chief executive Sir Kenneth Morrison.

"It further reinforces our view that the combination of Morrisons with Safeway will create a highly effective competitor for the big three national food retailers which they are all busy attempting to thwart," he added.

Judging the bids

The big grocery chains see Safeway as the last major opportunity for growth in the 100bn-a-year food retail sector.

But with the exception of Morrisons, all these retailers will be facing hard questions from the UK competition authorities, who want to make sure that neither consumers nor suppliers can be put at a disadvantage by the market power of one big player.

This complicates the situation for Safeway shareholders, who now have to judge the merit of bids ranging from all-cash offers that could run into trouble with the competition authorities to lower valued all-share offers that promise a rapid conclusion of the deal.

Tesco's 'low-risk strategy'

Tesco chief executive Terry Leahy told the Reuters news agency that his offer was "not a spoiling tactic, it is a serious move".

He said the competition authorities would now have to consider the break-up of Safeway, and in that scenario Tesco's claim to a share of its rivals outlets was "just as good" as that of its rivals.

David Stoddart, retail analyst at Teather & Greenwood, said the Tesco offer was no surprise.

"At best it may hope to succeed and at worse it gets to muddy the waters for the others," he said.

"It's going to cost them a few million quid but it's a low-risk strategy for Tesco."

Tesco's share price fell one penny to 186p.

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  Sir Terry Leahy, Chief Executive, Tesco
"It is important that the authorities hear Tesco's case"

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See also:

20 Jan 03 | Business
22 Jan 03 | Business
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