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Shares in discount retailer B&M jumped 4 per cent after reports that Asda is reportedly eyeing up a £4.4bn takeover bid.
Asda is understood to be attempting diversification to combat the threat of cut-price rivals, Lidl and Aldi.
Walmart-owned Asda, Britain’s third-biggest supermarket chain, has seen sales fall over the last three years amid fierce competition in the groceries sector.
FTSE 250-listed B&M could give Asda 500 extra stores through which to sell products such as its George clothing range.
The takeover target counts former Tesco chief executive Sir Terry Leahy as its chairman. Asda is in the early stages of assessing a potential bid for B&M, having commissioned external research into the company, the Sunday Times reports.
Asda did not immediately respond to a request for comment.
A move for B&M would follow similar deals by larger rivals Tesco and Sainsbury’s. Tesco is in the middle of a £3.7bn takeover attempt of wholesaler Booker, with the deal currently being assessed by the Competition and Markets Authority amid fears that the combined firm could have too much power in the sector.
It has continued to focus on larger stores as rivals have moved into the convenience market, a segment which has seen faster growth in recent years. Meanwhile discount shops such as Poundland have begun competing with Asda by selling clothing.
B&M’s sales grew 18 per cent in the first quarter of 2017 and the company is targeting further rapid expansion. Simon and Bobby Arora, the brothers who run the business, have said they plan to grow the estate from 543 shops to 950.
The brothers are now estimated to be worth almost £2bn, having recently cashed in £230m-worth of B&M shares.
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