MARKET COMMENT
Form Guide To The Race For Safeway

By Maynard Paton (TMFMayn)
January 22, 2003

Tesco (LSE: TSCO) this morning became the sixth party to confirm a potential bid for Safeway (LSE: SFW). Needless to say, guessing exactly who will eventually get hold of the under-performing supermarket is, as time goes on, proving more and more difficult. However, a few favourites are emerging. Here's the Fool's take on the runners and riders in the race for Safeway.

William Morrison (LSE: MRW): The current race leader after formally agreeing to buy Safeway. Prospective market share of about 15% should leave the Competition Commission hurdle straightforward. However, its all-share deal looks unlikely to last the distance; the offer is now 25% below Safeway's present share price. Fool odds: 12/1

Wal-Mart Stores (NYSE: WMT): The $216b daddy of retailing and owner of ASDA. Successful bid would take UK market share to 27%, making the Competition Commission jump very tricky. Has confirmed any offer will be in cash. With after-tax profits of $6.7b, also has the resources to run for the line unhindered. Fool odds: 3/1

Tesco: The country's leading grocer with a 26% market share and very likely to pull up at the regulatory hurdle. Only runner except Morrison to outline the benefits of its potential bid however. Offering shares as well as cash could prove a weight, although its paper is as good as its gets in the sector.  Fool odds: 10/1

J Sainsbury (LSE: SBRY): The UK's second largest supermarket, and another whose cash/share bid could stumble at the regulatory jump. Will find the going heavy, as management continues to tackle problems at its own chain. Offering under-performing Sainsbury shares will prove a race handicap. Fool odds: 10/1

Kohlberg Kravis Roberts: A US investment group ultimately looking to sell off parts of Safeway to race losers. Competition hurdles will not prove a problem, but no confirmation of an all-cash offer as yet. Will probably require a good food-retailing jockey onboard, such as Archie Norman or Allan Leighton. Fool odds: 4/1

Philip Green: Billionaire high street wheeler-dealer. Assuming he's got the funding, an all-cash offer and no competition issues could make for an easy run-in. Will also require the appointment of a good jockey. Fool odds: 3/1

Another bidder: Most likely a foreign supermarket that has yet to show its hand. Candidates include Dutch group Ahold and Carrefour of France. Fool odds: 12/1

Dead heat: Sector runners Wal-Mart, Tesco, Sainsbury and Morrison decide to cross the line together and launch a joint bid. Safety in numbers should clear the Competition Commission hurdle, leaving Safeway to be carved into four. Fool odds: 2/1 favourite

Race declared void: Safeway ditches Morrison and agrees to a higher bid that's subject to jumping -- but ultimately fails -- the competition hurdle. Morrison retires hurt, leaving Safeway to reject miserly bids from other race participants. Fool odds: 66/1

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