Sainsbury's enters battle for Safeway

A dramatic £3.2 billion supermarket "store war" broke out on Britain's high streets when Sainsbury's said it was planning a hostile bid for rival Safeway.

The bid would trump a £2.9 billion offer last week from the northern supermarket chain Wm Morrison and is thought likely in the City to flush out a third from American-owned Asda.

The three-way battle for control of Britain's fourth biggest food retailer will shape the British supermarket industry for decades to come and could leave only three serious national players.

Sainsbury's claimed it had been working on a bid for over a year but many City commentators said it was a desperate move that was forced on the company by its slide down the supermarket league tables.

Over the past decade it has been easily outstripped by Britain's biggest supermarket chain Tesco and is being fast overhauled by the number three player Asda. A Sainsbury's bid would struggle to clear British competition rules but the company said it would sell up to 90 of Safeway's 479 stores to overcome the hurdle.

Sainsbury's chief executive Sir Peter Davis said: "Over the past year we have looked at the possibility of combining with Safeway in order to offer more customers greater choice and a superior food proposition throughout the United Kingdom.

"Safeway's recent decision to relinquish independence offers us a unique opportunity to acquire a large number of stores, which would enhance our strategic transformation."

Sainsbury's also announced respectable Christmas trading figures, a 2.8 per cent rise in like for like sales in the 12 weeks up to Christmas.

A Morrisons-Safeway combination would catapult the enlarged group to number three in the food retail sector, just behind Sainsbury's.

Sainsbury's board is believed to have been locked in talks ever since Bradford-based Morrisons' shock move last Thursday.

Reports at the weekend suggested Sainsbury's had discussed the possibility of a joint bid with Wal-Mart, the US parent of Asda.

The Sainsbury's bid would be a mixture of cash and shares, a more attractive proposition for most City investors than the all-cash offer proposed by Wm Morrison on Thursday.

A Sainsbury's takeover would see at least 1,700 jobs squeezed from the combined group as Sir Peter said he expected savings of at least £300 million within three years of the two companies coming together.

Davis said he hoped to use the cost savings to lower prices after the takeover.

However, there is unlikely to be an rapid outcome to the bid battle as a competition inquiry could last at least six months.

The bid wars have been welcomed in the City where deal-starved advisers can look forward to a bonanza of corporate finance fees after one of the worst years in City history.

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