Asda considers bid for B＆M that would give it access to local stores

Asda is considering a move for the discount chain B&M, in what would be the latest attempt by a major supermarket to diversify in the face of growing competition from cheaper rivals.

A takeover of the budget retailer would be expected to cost more than £4bn. Asda, the third-biggest supermarket chain in Britain, has seen sales dwindle in the past three years and could use the 500 B&M stores as a further outlet for products such as its George clothing range.

Walmart-owned Asda refused to deny or confirm reports that it was in the early stages of assessing a bid for B&M, which opened its first store in 1978 but has rapidly expanded in Britain’s years of austerity. It has stores on high streets and out of town across Britain, selling fast-moving consumer goods and non-grocery products, including some DIY and garden goods.

A takeover by Asda would follow similar moves by other big supermarkets menaced by the rise of German competitors, Aldi and Lidl. Sainsbury’s is closing in on the local supermarkets owned by Nisa, negotiating a deal that is expected to be in the region of £130m, a year after Sainsbury’s bought Argos for £1.4bn.

Tesco has attempted to snap up Booker, the cash-and-carry that supplies Budgens and Londis convenience stores, for £3.7bn, although concerns from the Competition and Markets Authority mean any deal is unlikely to be concluded before December.

Asda has been hit hardest by cheaper competition, having positioned itself as the budget choice among the big four. Last year the struggling supermarket replaced its then chief executive, Andy Clarke, in an attempt to halt a succession of sliding sales figures. But the appointment of Sean Clarke, brought in from running Walmart’s Chinese businesses, has failed so far to halt the trend, with Asda recently reporting a 11th successive quarter of decline. In its attempt to cut costs, it was recently named the worst of the major chains by the industry watchdog for its treatment of suppliers and in warning importers that they would have to wait longer for payment.

Unlike Tesco and Sainsbury’s, Asda only operates large outlets, and has been unable to tap into the rise of convenience stores. Meanwhile, the likes of Poundland have started selling clothing, competing with Asda’s George range. The B&M deal could allow Asda to counter this latest incursion into its territory and compete with other leading grocers in local stores.

B&M was bought by the Arora brothers, the sons of a cash-and-carry owner from Manchester, in 2004 and has almost doubled in size in the past five years. Former Tesco boss Sir Terry Leahy joined the board in 2013 and a listing on the London stock exchange followed in 2014. It claims to have enjoyed its rapid growth on the basis of word-of-mouth, with virtually no advertising spend. Its revenues grew 18% in the first quarter of 2017. B&M also owns 95 stores in Germany under the Jawoll brand.

Last month, the Arora brothers cashed in nearly £230m worth of shares in the business, cutting their stake from about 21% to 15% and taking their total proceeds since B&M floated to nearly £1bn. The two, who live next door to each other and take holidays together, are estimated to be worth almost £2bn in total.

According to the Sunday Times, Asda has commissioned external research on B&M with a view to a potential bid, suggesting that Walmart is now prepared to reinvest to prop up the ailing chain rather than offload it.

As Asda spokeswoman said the firm would not comment on market speculation. B&M also refused to comment, but is understood to have had no knowledge of potential interest from Asda.