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In the UK, The Telegraph reports that Wal-Mart’s Asda Group and J. Sainsbury are planning to submit separate offers for the equivalent of more than $4.8 billion dollars (US) to acquire Safeway Plc, which already has agreed to be bought by the Wm. Morrison chain for $4 billion (US).

There is one report out of the UK that Sainsbury, which maintains it has been having merger talks with Safeway for some time, is willing to bid as much as $5.15 billion for the company, contingent on Safeway opening its books to be examined.

Further complicating the issue for Wm. Morrison is the news that at least one of Safeway’s major shareholders, a fund for Scottish widows, has said it wants to hold out for a higher price for its shares.

In addition, reports are that Safeway’s deal with Morrison gives it the ability to buy its way out in order to sell to another company.

This latest news trumps press reports last Friday that Wal-Mart and Sainsbury were discussing a possible joint bid for Safeway, and then would have broken the company with 75 percent of the stores being absorbed into the Asda Group and the balance going to Sainsbury. It is possible, based largely on press speculation, that the stumbling block to a joint bid was an inability to agree on how the stores would be split up.

The Observer, another UK newspaper, reports that government sources were telling it that the Competition Commission there was highly unlikely to approve an acquisition by either Sainsbury or Asda, the UK’s number two and three ranked supermarket chains, because it would diminish competition. A Morrison bid is viewed more enthusiastically because it creates a stronger entity that can compete with the UK’s top three grocery chains in a cutthroat retailing environment.

Tesco is the nation’s number one-ranked food retailer, with better than 25 percent of the market.

The bids from Wal-Mart and Sainsbury, if press reports are to be believed, would be structured differently. Wal-Mart reportedly would make an all-cash bid, while Sainsbury would offer a 50-50 mix of stock.

Sainsbury reportedly met “late into the night” with financial adviser UBS Warburg, as it tried to decide what to do. There were reports Sainsbury CEO Peter Davis was facing some resistance from his board of directors, some of whom felt that there is little chance such an acquisition would be approved by the government; this morning, however, Davis seemed to feel he had sufficient board support to move ahead.
KC's View:
We suspect that the finale to this story is far from being written, with all sorts of twists and permutations likely to emerge.

To us, it seems clear that the Wm. Morrison bid is the best one, both for consumers and for the broader health of the UK’s food retailing business. Four strong competitors is better than three.

Equally clear is the fact that the UK’s grocery competition is being changed forever, with the inevitable result being very few major players and even tougher price-based competition.

For US retailers, there must be a sense of deep foreboding as they watch events unfold there, wondering if it could happen here.