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Sainsbury may bid $5bn for Safeway

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LONDON, England (CNN) -- UK supermarket group J. Sainsbury said on Monday it is considering making a 3.16 billion ($5.1 billion) bid for Safeway, which has already agreed to be sold to smaller UK rival William Morrison.

U.S. retail giant Wal-Mart is also expected to make a bid for Safeway, the UK's fourth biggest food retailer which has been losing market share to it bigger rivals, according to media reports.

The announcement by Sainsbury could open a three-way bidding war for 479-store Safeway chain. Sainsbury, the UK's second biggest operator after Tesco, and Wal-Mart -- which owns Britain's third largest chain Asda -- had been expected to make a joint bid for Safeway.

Sainsbury's cash and stock offer, based on the closing price of Safeway on Friday, values the shares at more than 300 pence each. When Safeway's debt of 1.3 billion is included, the deal could be worth about 4.5 billion.

"Over the past year, we have looked at the possibility of combining with Safeway in order to offer more customers greater choice and a superior food proposition throughout the United Kingdom," Sainsbury Chief Executive Peter Davis said in a statement.

"Safeway's recent decision to relinquish its independence offers us a unique opportunity to acquire a large number of stores, which would enhance our strategic transformation."

Sainsbury said its purchase would result in a cost saving for both groups of 300 million over a three-year period. It said it may have to close 90 stores and cut 1,700 jobs.

Sainsbury's bid follows a 2.7 billion ($4.35 billion) all-cash offer on Thursday from William Morrison, which was based on 277.5 pence a share. Safeway's board has agreed to the Morrison offer.

Meanwhile, Wal-Mart is expected to make an all-cash offer for Safeway, the London's Sunday Telegraph said.

"We'll say that we are sounding out the Office of Fair Trade,'' the paper quoted an executive close to Wal-Mart, owner of Britain's third-largest supermarket chain Asda, as saying.

Morrison's Executive Chairman Kenneth Morrison and Financial Director Martin Ackroyd will return to London this week to reassure their institutional shareholders and outline how they plan to manage the acquisition of Safeway, the paper said.

"Wal-Mart has the balance sheet to pay [all] cash and that will be seen as the most attractive offer," Ashley Willing, a fund manager at Gertmore Investment Management, told Reuters.

Shares in Safeway (SFW) rose 6.4 percent to 297.77 pence in midday trading on Monday in London, while Sainsbury (SBRY) fell 3.5 percent to 246.75 pence and Morrison (MRW) was down 2.9 percent to 185 pence.

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