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Wal-Mart Stores submitted a $4.8 billion (US) bid to acquire Safeway Plc in the UK, hoping that it could beat out a $5.15 billion (US) bid by Sainsbury by making the offer for all-cash. The Sainsbury bid was for a mixture of cash and stock.

Wm. Morrison started the bidding war by offering $4 billion for Safeway, a bid that was accepted. However, the new bids almost certainly diminish the chances that Morrison will get Safeway, at least for that price.

However, it is expected that the UK’s Competition Commission will question an acquisition by either Sainsbury or Wal-Mart’s Asda Group, 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, and is not expected to get into the fray. However, this level of competition for Safeway is almost sure to set off a new round of price cuts from the various players.

The Office of Fair Trading (OFT) has not yet received any bid submissions. It could take as much a six months for this deal to work its way through the regulatory system.
KC's View:
According to UK bookies, Wal-Mart and Sainsbury are the odds-on favorites to win the race to acquire Safeway Plc, the nation’s number four-ranked food retailer.

At one bookmaker, odds on a Wal-Mart victory are 11-10, Sainsbury is given 7-4 shot, Wm. Morrison is a long shot at 7-2 and Tesco a real dark horse at 12-1 odds.

Another bookmaker put Sainsbury as the 6-5 favorite, followed by Wal-Mart at 6-4 odds and Morrison at 5-2.

If we were there, we’d still bet on Morrison. We think there’s no way the Competition Commission allows Wal-Mart or Asda to absorb Safeway, essentially eliminating one major competitor. A Morrison victory actually adds a layer of competition, which is a lot healthier for everyone.