Somerfield rejects takeover offer

A proposed takeover bid for the UK retailer Somerfield was rejected yesterday by the company's board on the grounds that it undervalued the company.

On 17 April, the company received an offer from a team led by former retail entrepreneurs John Lovering and Bob Mackenzie, proposing to pay 103 pence per share for Somerfield, valuing the chain at more than £500 million (€720m). At the close of business yesterday, Somerfield's shares were valued at just under 94 pence.

But this was not considered high enough for the board of Somerfield, which also owns the Kwik Save discount food retail group.

John von Spreckelsen, chairman of the group, said: "The board considers that the price indicated fails to reflect the value of the business. Somerfield has strong brands in Kwik Save and Somerfield, a solid strategy for delivering value to shareholders and excellent prospects."​

While it could be argued that the company's results in recent years belie this optimistic outlook, the company's most recent set of figures certainly seemed to show that the company was managing to turn itself around after years of struggling to integrate Kwik Save.

A renewed focus on the food discount group - mainly involving improving the shopping experience there without any significant increase in prices - and heavy investment in store revamps at the Somerfield chain have helped the company - the fifth-largest national food retailer in the UK - to recover some of the ground lost to its larger rivals in recent years.

But Lovering and Mackenzie clearly believe in the potential highlighted by von Spreckelsen, although analysts have been broadly sceptical of the offer, agreeing with the Somerfield board that it undervalues the company. Most suggest that a bid price of around 110 pence would be more appropriate. There is as yet no indication of whether a revised bid will be put on the table, however.

While it is only one place behind Safeway in the retail rankings, there has been far less interest in Somerfield than in the larger chain, not least because it has a much smaller portfolio of stores. But many of these stores are medium-sized outlets in town centres, and as such could be of interest in the long term to some of the larger groups.

Both Sainsbury and Tesco have been increasing the number of smaller stores they operate in recent years, partly because of increasingly tough restrictions on opening larger stores, and Sainsbury has in fact already been linked to a possible acquisition of some Somerfield stores if the Lovering bid succeeds.

But it is still uncertain how many of Somerfield​'s 1,300 stores would be of interest to the larger groups (because of their location, profitability and, not least, competition concerns), and a piecemeal acquisition of stores is far more likely an outcome than a complete takeover by a retail rival.