Wal-Mart joins the chase

The world's biggest retailer waded into the battle for Safeway yesterday with the promise of an all-cash bid if it can obtain clearance from the competition authorities.

Wal-Mart, the American owner of Asda, refused to indicate whether the bid would top the 300p a share proposed bid tabled by Sainsbury's on Monday.

The Americans will name their price only after discussions with the office of fair trading which should provide guidance on the number of stores that would have to be sold to win approval. Wal-Mart believes only about 90 should have to go up for sale, mostly in Scotland. The group's submission to the OFT was delivered yesterday.

Wal-Mart believes Safeway shareholders would prefer cash to Sainsbury's half-shares, half-cash deal or the all-share offer from Morrison, now worth 243p a share, recommended by the Safeway board last week.

Asda is Britain's third biggest supermarket chain, with 258 stores, 117,000 employees and 15.6% market share. Safeway has a 10% market share and a combination of the two chains would be neck and neck with market leader Tesco, which has 25.8%.

Unlike Sainsbury's - which would be financially stretched to buy Safeway - Wal-Mart has deep pockets. The £3bn price tag is just a week's takings for the global operator.

Bookmakers made Asda favourite to win the extraordinary battle which is likely to be the last big shake-up in the British grocery business. Financial Spreads quoted Wal-Mart as 6-4 favourite, with Sainsbury's at 7-4 and Morrison 9-4.

Chief executive Tony De Nunzio ruled out speculation that Asda might work jointly with venture capitalists Kohlberg Kravis Roberts, with KKR taking the stores it was forced to sell. "This is a sole approach," he said.

Sources close to the bid said yesterday that the OFT will refer all three bids for the scrutiny of the competition commission. Morrison had hoped to escape a referral, which could take six months.

The first signs emerged yesterday that MPs will weigh into the debate.

Vincent Cable, the Liberal Democrat industry spokesman, said: "Anything that reduces competition is likely to rebound on consumers in the form of less choice and higher prices. It is vital that the competition commission investigates any takeover fully and does not simply let any deal go through unopposed."

Mr De Nunzio indicated that Asda's battle plan will focus on offering better prices to shoppers. "We would increase competition in the south and bring down prices," he said.

"Getting stores in parts of the country where we are under-represented means we can meet the pent-up demand of people who want our everyday low prices - 12% lower than the average supermarket."

He added: "The competition commission has already admitted that Wal-Mart coming in to Britain generated £1bn of price savings. It was in their report in 2000 and it was in their press release."

Asda has long wanted to merge with Safeway. Indeed, the two companies held talks five years ago.

Mr De Nunzio said Asda was "clearly prepared to be flexible" about how many stores it would have to sell and might not want 120 smaller Safeway stores. Asda would be reviewing options for those outlets.