British Gateway Accepts Takeover by U.S. Firm : $3.1-Billion Deal for Food Retailer Marks Europe’s Biggest Leveraged Buyout

Gateway Corp., Britain’s third-largest supermarket chain, said Tuesday that it accepted a $3.1-billion friendly takeover bid put together by a U.S. investment bank, marking the largest leveraged buyout ever in Europe.

A partnership including the New York-based Wasserstein Perella & Co. and the retailer Great Atlantic & Pacific Tea Co. outbid Isosceles PLC, a recently formed British investor group, which still has a chance to improve its offer.

The deal demonstrates the growing importance of foreign investors here and an increased acceptance of high-debt deals that take companies private and are already common in the United States.

In a leveraged buyout, a company’s public stock is bought with borrowed funds and the target company’s assets are used as collateral.

“There is a slowly changing environment for these kinds of deals,” said analyst Linda Harte, an analyst with the stockbroker Hoare Govett.

The bid was made through Newgateway, a company set up by Wasserstein Perella and U.S. food retailing giant A & P, which is controlled by a West German firm.

Better Financed

“The board of Gateway unanimously recommends the Newgateway offer,” said a company statement.

Gateway’s shares jumped 11.5 cents to $3.44 on the London Stock Exchange after news that the bid had been accepted.

Newgateway’s offer of $3.50 a share topped an Isosceles bid of $3.25.

“The bid is substantially higher and more solidly financed,” Gateway spokesman Adam Brown said. “It has a proven retailer in A&P;, as opposed to Isosceles, which has none whatsoever, and has a commitment to enhancing the business. Those are basically the major points.”

Isosceles, which was also formed to bid for Gateway, owns a 19% stake in Gateway and is supported by shareholders owning an additional 9%, giving it a strong position in determining the fate of the company.

The consortium has said it will sell Gateway’s superstores if it gets control.

In a separate statement, Isosceles said it had the right to revise its $2.93-billion offer, which was made in April and closes Thursday.

Share analysts were divided about whether Isosceles, which includes former Gateway managers, could manage a higher leveraged bid.

“The chances are they have very little ammunition left,” one food stock analyst said.

But Sara Carter, food retailing shares analyst at Nomura Research, said: “Yes, I think there’s a possibility they can come up with the money. . . . I don’t think we should assume at this stage that Isosceles is pulling out.”

Owns 800 Stores

Isosceles controls 26.7% of Gateway.

Gateway, which owns 800 stores, said the Newgateway offer would bring proven retailing skills to Gateway and showed a commitment to the existing business.

But A & P Chief Executive James Wood said at a press conference here that he plans to sell “unwanted” assets of Gateway and raise up to $1.16 billion.

“We don’t think there’s a problem realizing a large amount of cash by realizing unwanted assets,” said Wood, who is slated to become responsible for day-to-day management of Gateway if the takeover is completed.