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Tesco joins Safeway bid queue

Bidders are lining up to take control of Safeway, the UK's fourth largest supermarket chain
Bidders are lining up to take control of Safeway, the UK's fourth largest supermarket chain

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LONDON, England (CNN) -- Tesco, Britain's biggest supermarket chain, is considering making an offer to buy Safeway it has said, joining a long queue of bidders.

Any offer, a mixture of cash and stock, would be subject to regulatory approval but would be "compelling" for Safeway shareholders, Tesco said on Wednesday.

Tesco's Chief Executive Terry Leahy told Reuters the move was serious and not a spoiling tactic. It would retain 75 percent of Safeway's stores and avoid competition problems.

Leahy said he didn't think it was likely competition authorities would allow the four major UK supermarket players to be reduced to three via a Wal-Mart or Sainsbury bid, but if a break-up of Safeway occurred he wanted to be involved.

There are now six bidders for Britain's No. 4 supermarket chain Safeway. Billionaire Philip Green, who owns Bhs and Arcadia, joined the fray on Monday following other bidders such as Wal-Mart's Asda, J. Sainsbury and U.S. corporate buyout house Kohlberg Kravis Roberts.

William Morrison Supermarkets kicked of the tussle 13 day ago when it announced an agreed 2.48 billion all-share offer.

The final bids could come in excess of 3 billion ($5 billion).

"It's the last chance for retailers to take a big chuck of the grocery market," Henk Potts, strategist at Barclays Private Clients, told CNN. "Tesco is the market leader with a 25 percent share. I find it difficult to see how the competition authority would clear this deal."

"This is Sainsbury's last chance to grow its business but cash is king and the market is betting Green is going to win this battle."

Any offer from Sainsbury and Asda would face tough regulatory scrutiny but a bid from Green could get the go-ahead as his retail empire, known for clothes chains like Top Shop and Burton, does not include food-retail outlets.

Wal-Mart has expressed interest in an all-cash offer, while Sainsbury is considering a cash and share offer of at least 300 pence per Safeway share, valuing it at about 3.2 billion.

Analysts expect a successful bid to be in the range of 330-340 pence but see the matter largely in the hands of competition authorities.

The U.S.' KKR has previous links to Safeway. It bought out U.S. Safeway for $4.8 billion in 1986, when the group owned just 11 UK supermarkets. KKR sold the UK stores the following year to Argyll, which changed its name to Safeway in 1996. KKR floated the U.S. chain on the stock market in 1990.

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