Morrison 'may have to up Safeway bid'

Supermarket retailer William Morrison may be forced to increase its offer for rival Safeway to £3.5bn ($5.6bn), reports say.

Safeway's board is planning to tell the Bradford-based firm that it must increase its original £2.9bn offer by around £600m if it wants to win their backing, the Sunday Times reported.

Morrison's all-share offer, which sparked the takeover battle in January, has now lapsed.

While that deal would have involved issuing Safeway shareholders with shares in the enlarged group, investors are now thought to be keen on a cash element to sweeten the bid.

If Morrison refuses it may run the risk of the Safeway board refusing to recommend the deal to its shareholders.

Exposed

That would result in forcing Morrison into prolonging the takeover saga by mounting a hostile bid for the chain.

Such a move would also leave Morrison exposed if BHS owner Philip Green does decide to table his own offer for Safeway.

The retail entrepreneur had expressed an interest in bidding for the supermarket and was exempted from the competition inquiry because he has no interests in the grocery sector.

But some experts have claimed that Morrison's new offer may be pitched at a lower level given Safeway's lacklustre trading performance since the start of the year.

In contrast, family owned William Morrison has seen half-year profit jump 10% to £126m.

Meanwhile, the government's decision to block bids from the big three supermarket chains has left Sainsbury's on bid alert, the Observer has claimed.

The report said Sainsbury's fears Philip Green may opt to bid for it rather than Safeway.

Blocked

Sainsbury's refused to comment on the speculation.

On Friday, the government announced it had blocked takeover offers from Morrison's three bigger rivals - Tesco, Asda and J Sainsbury - on competition grounds.

The decision followed a five-month investigation into the likely impact of a Safeway buyout on food prices and consumer choice by the Competition Commission.

However, Trade & Industry Secretary Patricia Hewitt said Morrison would have to sell off 53 of Safeway's 479-strong chain of supermarkets if its takeover attempt was successful.

That requirement could open up expansion opportunities for the big three, if they decide to snap up the stores for sale.

But, reports suggest, other retailers could also be queuing up to buy the sites with both Marks & Spencer and Waitrose are thought to be interested.