Wal-Mart enters Safeway battle

Wal-Mart, Asda's US-based owner and the world's largest retailer, has declared its readiness to make an all-cash offer for Safeway pending the outcome of discussions with the competition authorities.

The company said in a brief statement that it would a make submission to the office of fair trading, the consumer affairs watchdog, to seek clearance for a bid.

It refused to speculate on the size of any all-cash offer until those discussions have ended, and said that a counter-bid could take weeks to table.

"We need to have our discussions with the competition authorities before we can confirm what price we're willing to pay," Asda president and chief executive, Tony DeNunzio, told Reuters.

He added: "We recognise that the offer has to be attractive to shareholders."

Asda, backed by the might of Wal-Mart, is the most powerful entrant yet into the bidding war for Safeway sparked by its £2.9bn merger agreement last week with northern supermarket chain Morrisons. J Sainsbury yesterday signalled its readiness to trump Morrisons with a £3.2bn offer.

But Asda's strength could prove the stumbling block to a successful deal, as it will come under careful scrutiny from the competition authorities.

"We're Britain's favourite supermarket and the number one company for which to work," Mr De Nunzio said.

"Getting stores in parts of the country where we're under-represented means we can meet the demand of people who want our everyday low prices."

Asda will be hoping that an all-cash offer will entice Safeway shareholders, although it signalled that it would probably pitch its eventual bid below the cash and shares bid of 300p per share proposed by Sainsbury.

"They're going to pay cash, which makes them the favourites as far as I'm concerned," David Buik, of spread betters Cantor Index, said about Wal-Mart's intentions.

"They have the flexibility to sell out bits and pieces of the portfolio if they are going to contravene regulatory requirements. Cash is king."

Should Asda, Britain's third-biggest supermarket group, win the three-way battle for Safeway, it would take second place in Britain's supermarket league behind Tesco, the leader in terms of market share.

Sainsbury, currently ranked second, fears being overtaken by a Morrisons-Safeway combination.