Safeway suitors consider legal action

Two of the supermarket groups which were blocked from bidding for the Safeway chain in the UK are considering taking legal action against the draconian ruling which prevents them from bidding for more than just a handful of the company's stores.

According to a report in today's Financial Times​ newspaper, both Asda and Sainsbury are looking for a possible loophole in the government's ruling which limits their acquisitions to the 53 Safeway and/or Morrisons stores which must be sold in order for the takeover to be approved.

The two chains are not looking to overturn the decision preventing them, or larger rival Tesco, from bidding for Safeway as a whole - all three chains must certainly have hoped rather than believed that their initial bids would be allowed to proceed, given the UK government's well-documented concerns about competition in the retail sector - but are concerned that the proviso limiting their takeover possibilities will be detrimental to future growth.

The Competition Commission, whose advice formed the basis of the decision last week by trade and industry secretary Patricia Hewitt to allow only Morrisons' bid for Safeway to proceed, believes that four national supermarket players are needed to ensure that consumers and suppliers are protected.

Few would argue with this opinion - in fact, the takeover of Safeway is likely to lead to even lower prices as Morrisons introduces its low-price policy across the chain - but limiting in advance the possible individual store takeovers seems a little harsh.

Sainsbury in particular is likely to be affected by this decision, as it has already been prevented from buying any stores owned by the Somerfield group - another potential takeover target. Sainsbury was part of a failed hostile takeover bid for the smaller chain during the early summer, and will not be able to bid again for the group for at least six months. Even then, there is of course no guarantee that it will be allowed to acquire the chain, should Somerfield relax its opposition.

Asda is thought to be the chain most likely to snap up stores sold off by Morrisons and Safeway - it has the least overlap in the Scotland and the south east of England, where Safeway is strongest - a move which would allow it to widen the gap between itself and Sainsbury. But if its growth elsewhere is anything to go by - and the success of its UK operations is to be continued in the years to come - Asda's aggressive owner Wal-Mart will not be content to limit its takeover opportunities to just a handful of stores.