Somerfield rejects takeover bid, again
grounds that it undervalued the company, UK retailer Somerfield has
today turned down a second bid from the same parties on the same
grounds. But this is unlikely to be the end of the saga, with
expansion in the UK market so hard to achieve by store openings.
Somerfield's future continues to look as uncertain as that of UK rival Safeway, with both companies the target of takeover bids. But while Safeway's suitors must obtain permission from the Competition Commission before continuing to court the company, Somerfield's potential buyers have a different problem - persuading the company's management to sell in the first place.
Like Safeway, Somerfield has had a torrid time of it in recent years, with its acquisition of Kwik Save coming at a time when increasingly sophisticated shoppers were turning away from the stack-it-high, sell-it-cheap style adopted by the discount chain.
But in the last six months the company has begun to see light at the end of the tunnel, with a marked improvement in its performance helped by store refits and new product lines at both the Somerfield and Kwik Save fascias as part of a determined move up-market.
As Somerfield's performance has improved, allowing the management to contemplate a more secure future for the chain, the company has, however, begun to attract interest from potential bidders.
In April, the company received a speculative offer of 103 pence per share from retail impresarios John Lovering and Bob Mackenzie, valuing the company as a whole at around £500 million (€700m). This bid was duly rejected by the Somerfield board on the grounds that it undervalued the company, especially at a time when it was well on the way to recovery.
But even as the initial proposal was rejected, rumours began to circulate that Lovering and McKenzie would make a higher bid for the chain, and Somerfield has today confirmed that a second bid was made on 3 June.
This time the offer price was 120 pence per share, valuing the company at nearer £585 million, but with a number of new conditions attached, not least Office of Fair Trading clearance for the purchase of number of Somerfield stores by Sainsbury.
Somerfield's board has rejected this new offer as well, again citing the fact that it undervalues the company but adding that the offer also "presents considerable risks to the business". In a statement, the company said that better value for shareholders could be obtained by implementing its strategic plan (refitting and updating its stores and product ranges) than by selling off the group and seeing its main assets stripped by rival operators.
John von Spreckelsen, Somerfield's executive chairman, commented: "This latest approach substantially undervalues our business. We have strong brands in Somerfield and Kwik Save, a solid strategy for delivering shareholder value and excellent prospects. The strategy is underpinned by a very strong balance sheet and a valuable property portfolio."
But with growth in the UK supermarket sector becoming increasingly difficult, the medium-sized chains such as Somerfield and Iceland, along with the convenience store chains, are likely to become ever more attractive prospects for the major chains such as Tesco or Sainsbury.
While Somerfield is not as attractive a prospect as Safeway, having a much smaller store portfolio, there are currently five bidders for Safeway, only one of whom will be successful. Once the Safeway saga is decided - which will not be until August at the earliest when the Competition Commission makes its decision on who can bid and who cannot - perhaps the spotlight will burn more brightly on Somerfield.
