Asda targets Argos

Source : Neil Craven, Verdict

Supermarket chain Asda is gearing up for a major acquisition in an attempt to seize general merchandise market share and to close the gap on its bigger rival Tesco. It has been given the green light to make the play by its US parent Wal-Mart, which has become frustrated at the lack of progress on expansion.

Asda is understood to have sized up Homebase and Argos owner Home Retail but has also looked at a number of other firms based both on High Streets and out-of-town shopping parks.

Observers said it may also have looked at value clothing chain New Look. It has also previously considered buying discount fashion chain Matalan but sources said that had now been ruled out. Any acquisition is likely to face regulatory scrutiny because it could increase its size dramatically.

However, Asda's sales of more than £20billion are only half those of Tesco and despite its George branded clothing range its non-grocery sales are estimated to be overshadowed by the same magnitude.

Wal-Mart, which bought Asda in 1999 and is famous for its secrecy over corporate deals, declined to comment. However, one source said: 'They are poised for a major acquisition. Wal-Mart has realised it's the only way they can grow and compete with Tesco on the same footing in the UK.'

Wal-Mart was founded in 1962 as a low-cost general merchandise store and its manufacturing operation in China has been described as 'colossal'.

Its annual global turnover of £263 billion is almost as big as the entire British retail market combined.

In February, Asda chief executive Andy Bond said he planned to double its non-food sales in the next three to five years. Bryan Roberts, an analyst at Planet Retail, said an acquisition would be necessary to achieve that level of growth.

Sources said Asda was nearing a decision and an agreement on any deal could be completed in the first half of this year.

Asda's growth in Britain has been hampered by UK planning laws and the scarcity of sites big enough for its superstores.

In 2003 it began testing smaller, general merchandise-only Asda Living stores and has said it wants to have a chain of 150 in five years.

It also tried opening a chain of George stores but scrapped the plan two years ago after the project failed to take off.

It also previously considered buying the now collapsed chains Woolworths and MFI.

However, the plans have always been scuppered by other more pressing issues, such as the fall in the value of the dollar which makes such purchases less attractive.