Wal-Mart Bid on Supermarkets In U.K. 
Is Move to Thwart Rival 

DEBORAH BALL / Wall Street Journal 11dec03

[More on Wal-Mart]

LONDON—Wal-Mart Stores Inc. has approached British supermarket group Safeway PLC with an offer to buy part of its business for nearly £2 billion ($3.5 billion), in a move aimed at foiling a rival offer for the country's No. 4 grocer.

According to people familiar with the situation, Wal-Mart's U.K. chain, Asda, has approached Safeway with an indicative offer of £2 billion to buy 70 of its stores. That proposal is aimed at taking the wind out of an imminent takeover offer by William Morrison Supermarkets PLC, the country's No. 5 supermarket chain. Experts say Wal-Mart's offer faces considerable regulatory obstacles. Safeway, Asda and Morrison all declined to comment. Safeway PLC isn't related to Safeway Inc. of the U.S.

The move is the latest twist in a saga that began in January, when Morrison's put forth a bid then valued at £2.5 billion for Safeway, considered the last piece of the consolidation puzzle in U.K. food retailing. That offer prompted Asda, the country's No. 2 grocer in terms of market share, as well as market leader Tesco PLC and J Sainsbury PLC to jump in with offers.

This fall, however, regulators decided that Morrison's was the only offer that would guarantee sufficient competition in the sector. Morrison was recently cleared to launch a new bid by Dec. 29.

Asda is making one last attempt to foil the Morrison bid. According to people familiar with the situation, its indicative offer to buy 70 of Safeway's stores, about 15% of the chain's total, would constitute an entirely new offer that U.K. competition officials would have to consider. The high price would force Safeway's board to consider whether shareholders would be better off turning down any bid by Morrison.

People familiar with the offer say that Asda hopes to deflate Morrison's interest in acquiring the rest of the group.

Experts say the offer faces considerable regulatory problems. In particular, during their lengthy review of the Safeway case, U.K. competition authorities said they want any acquisition to produce a fourth strong national player in order to ensure competition for consumers. They say officials could block the Asda move if it was found that Safeway would be weakened by losing the 70 stores, even if the rest of the group were bought by Morrison.