Safeway raises stakes in takeover free-for-all

SAFEWAY, the supermarket group at the heart of a looming six-way takeover battle, turned the screw on the bidders yesterday by saying its property assets were worth far more than their bids implied.

Safeway, Britain’s fourth biggest supermarket chain, said an independent valuation of just 201 of its 479 stores put their real estate value at £4.5 billion. That is almost £2 billion, or 184p per share, higher than their current net book value.

The only current bid on the table, the all-share offer from William Morrison, values Safeway at 228p per share at current share prices.

Sainsbury has said it is weighing up a cash-and-shares offer worth at least 300p. The other four potential bidders, Tesco, Asda, retailing entrepreneur Philip Green and private equity house Kohlberg Kravis Roberts, have not tipped their hand on possible price.

But City food retailing analysts said last night that the independent property valuation from valuers DTZ upped the ante in the takeover auction. They said it was possible Safeway might use the valuation to try and squeeze as much as 350p a share, or even £4, from any eventual buyer.

David Webster, chairman of Safeway, said: "This property valuation, with its £2 billion surplus, underlines the substantial value within Safeway’s store portfolio. We would expect our shareholders to benefit from this under the terms of any proposal."

Paul Smiddy, an analyst at brokers Baird, said: "It is an asset play for many people in a sense, so it’s appropriate to look at it in this way."

Iain McDonald, retail specialist at Numis Securities, commented: "If people start bidding against each other, then it’s [a 400p per share offer] not beyond the bounds of possibility.

"You would still say at this stage that £4 stands a touch on the racy side. But nonetheless there’s quite clearly a lot of value here for whoever gets it."

Safeway said the 278 stores not surveyed by independent valuers DTZ had a current book value of £962 million.

Safeway initially recommended acceptance of Bradford-based Morrison’s bid, but withdrew this advice on Thursday in the light of the rapid interest from a clutch of other potential bidders.

There was no immediate reaction to the latest development from the various bidders yesterday.

One puzzle for City analysts last night was why the company did not take the higher independent valuation of its assets into account when initially accepting the Morrison offer.

A Safeway spokesman said the company had originally accepted the Morrison bid because the all-share deal gave it 47 per cent of the enlarged group and the potential to share in possible share price gains.

The company also has non-store assets, including sites, developments in progress, distribution centres and a freehold head office, with a current net book value of £565 million.

The successful bidder will also have to take on about £1 billion of Safeway’s debt on top of the purchase price.

The group’s shares firmed 10p, or over 3 per cent, on news of the property revaluation. Tesco dropped 3p to 178p, while Sainsbury’s put on 7.25p, or 3 per cent, to 246.75p.