Coming into a crowded field of competitors, Wal-Mart has at least one distinct advantage: cash, and lots of it. The other bidders, J Sainsbury and William Morrison Supermarkets, are offering either all-stock transactions, or some combination of cash and stock. Not only could Wal-Mart handily top their offer prices, but the temptation of an all-cash offer for Safeway shareholders might mean that Wal-Mart wouldn't necessarily have to get into an all-out bidding war to begin with.
Safeway's board has already approved William Morrison's all-stock bid of $4.6 billion. Then, Sainsbury jumped in, saying it may bid as much as $5 billion. Wal-Mart hasn't declared yet how much its all-cash offer will be.
The much sought-after Safeway is the fourth-largest chain in Britain. It's fallen on hard times in the last few years, but its 10% market share would be a great asset for the eventual victor. Were Wal-Mart to succeed in its bid for Safeway, after combining the chain with its existing ASDA chain, the retailer would control about 26% of the British grocery market. That would bring it head to head against No. 1 one chain Tesco.
And that's where Wal-Mart's desire for Safeway could ultimately break down. Britain has much stricter competition-preserving regulations than the U.S. Wal-Mart would have to be cleared by the Office of Fair Trading (OFT) to make its bid. ASDA would have to divest a number of stores, likely around 100, to gain clearance.
Such bureaucratic hoop jumping could potentially take six months or more. William Morrison, the fifth-largest grocery chain, will likely face the fewest regulatory hurdles. Safeway may not be able to afford the waiting time it could take for a cleared bid from Wal-Mart or Sainsbury. Because of that, it could end up taking the board-approved all-stock bid from William Morrison.
For once, where Wal-Mart's involved, it may not come down to whose pockets are the deepest. Company officials are set to start talks with the OFT today. However, lots of cash is still lots of cash, and Safeway just may decide that Wal-Mart is worth the wait.