Wal-Mart May Be Planning a British Excursion

"They're going to need another growth avenue to maintain their EPS growth," said Bill Dreher, who covers Wal-Mart for W.R. Hambrecht. "That avenue is obviously going be international."

(W.R. Hambrecht does not have any investment banking business with Wal-Mart.)

Wal-Mart representatives were not available for comment. In a statement last month, the company said it was considering making an all-cash offer for Safeway.

The battle for Safeway U.K. began last month when the supermarket chain announced that it had agreed to be acquired by rival William Morrison. After the deal drew the interest of Wal-Mart, Tesco and other companies, Safeway withdrew its recommendation on the deal. Originally valued at about $4.5 billion, the all-stock deal has since dropped in value with the fall of Morrison's stock and is now worth about $3.7 billion.

Morrison made its bids formal at the end of last month, starting a regulatory clock. Safeway has until this Friday to accept the offer and if it accepts, the companies have some 60 days to complete the deal.

Market watchers expect Wal-Mart and several other companies, including U.K. supermarket rivals Tesco and Sainsbury, to submit competing bids before Safeway and Morrison can complete their deal.

For Wal-Mart, an acquisition of Safeway would allow it to jump from being the third-biggest player in the U.K. grocery market to potentially the biggest. Depending on how many stores it would have to sell off to satisfy antitrust concerns, Wal-Mart could claim more than 25% of the British grocery market after the acquisition.

Even more important, the company could secure new locations in a country where new retail space can be hard to come by, analysts say. Such an acquisition could be the best way for Wal-Mart to expand in Britain, they say.