KKR to enter Safeway fray

The US buyout firm looks set to step into the ring as the bidding war for the UK supermarket chain intensifies.

US private equity  firm  Kohlberg Kravis Roberts  is reported to have held discussions with US supermarket giant Wal-Mart over a bid for UK supermarket group Safeway, which recently was put in play after an agreed all-share bid from fellow UK food retailing group Wm Morrison was announced last week.  

 

Wal-Mart, the world’s largest retailer which already owns the UK’s third-largest supermarket chain Asda, today confirmed its interest in pursuing an all-cash offer for Safeway in a statement to the London Stock Exchange.

 

In the statement, Wal-Mart acknowledged that any deal to acquire Safeway could raise competition issues in the UK retail sector. “Such an offer, if made, would be subject to the usual conditions, including regulatory clearance which may require disposal undertakings to be given by Wal-Mart. Accordingly, Wal-Mart will be making a submission to the Office of Fair Trading today in order to seek such clearance.”

 

KKR is considering a joint bid with Wal-Mart, although the US retail giant hasn’t ruled out the possibility of going it alone. The Times reports that a joint bid with Wal-Mart, which would almost certainly result in KKR keeping a large proportion of Safeway stores to reduce competition concerns, would be made well in excess of 300 pence, valuing Safeway at over £3bn. 

 

Yesterday,  another UK food retailer, Sainsbury,  also  confirmed its interest in Safeway, with a mixed cash and share offer that would value the business at about £3.2bn, exceeding  the initial all-share bid  from Wm Morrison Supermarkets  that valued Safeway at about £2.6bn. Sainsbury, which envisages cost-savings of around £300m if its bid is successful, believes it would have to dispose of only 90 stores to assuage competition concerns.

 

HSBC and Schroder Salomon Smith Barney are advising Safeway on the sale. DrKW is acting for Wal-Mart. Sainsbury’s is being advised by UBS Warburg and Goldman Sachs International. Wm Morrison is being advised by ABN Amro.