Marks mulls Safeway shopping trip

HIGH Street group Marks & Spencer could be the next retail group to enter the race for Safeway after Tesco declared its interest on Wednesday. Advisers Morgan Stanley have been looking at Safeway's store portfolio to work out how many would convert to Marks's food format.

It is known that M&S has held talks with Safeway chairman David Webster during the last 18 months on a possible deal. Banking sources say a full bid is possible, though analysts reckon the most likely outcome is that M&S 'will become a minesweeper for leftover stores'.

Chief executive Roger Holmes could easily afford to launch a cash-and-shares offer, though he may find it difficult to convince investors to back the move at this stage in the M&S recovery.

He is weighing up his options, deciding whether to hold fire until it becomes clear which bidders will make it to the next stage. 'It would be easier to wait and then join forces with Asda or whoever looks set to win,' said one analyst.

Safeway has 121 stores out of a total of 479 that are less than 15,000 square foot. These would be a suitable size for conversion to M&S Simply Food stores.

It has 166 stores which are between 15,000 and 25,000 square feet - some of which would be suitable for M&S food and clothing stores. Marks said: 'We have absolutely no comment.'

Tesco, down 1p at 186p, said it was considering a 'compelling' cash-and-shares offer. 'We believe we can create the most value out of this - that will allow us to make the strongest bid,' said chief executive Sir Terry Leahy. Rival contender Philip Green said his decision to bring in West LB banker Robin Saunders 'demonstrates we are serious'.