Europe's Big Land Grab.

If the bidding frenzy over Safeway were any indication, you'd think that big grocery stores had become luxury collectibles. Every one of Britain's top retailers--Tesco, Wal-Mart-owned Asda, Morrisons and Sainsbury's--are making a play for Safeway, which became a takeover target when sales started lagging at its 480 stores. But the real appeal of Safeway has little to do with the value of its stores: it's about the land they sit on. There's now so little property available for commercial development in Britain, or in Western Europe, that buying old stores is the fastest way to find space for new ones.

This explains why European retail is one of the few industries anywhere on the globe that have been generating a steady stream of deal making buzz. At a time when global mergers and acquisitions have fallen 81 percent from a 2000 peak of $3.4 trillion, the Safeway deal has been generating headlines since January. The bids, which started at [Pound sterling]2.9 billion, are now under review by Britain's Competition Commission, the national trustbuster. Its recommendation, due this month, could decide the winner.

The commercial-land shortage is largely a result of the campaign to prevent the WalMartification of Europe. In recent years authorities have imposed stiff limits on the growth of superstores (typically more than 4,600 square meters), effectively blocking the opening of new ones in countries from Britain to France, Germany and the Netherlands. Safeway has become a particularly hot commodity in part because many of its stores have the combination of size and location that big-box retailers crave. "There are Safeway stores in this portfolio that will have directors of the other companies salivating," says David Southwel, spokesman for the British Retail Consortium trade group.

Gone are the days of the '70s and '80s, when lax zoning laws made it easy to build new stores in Britain, and towns generally welcomed the tax revenue and jobs. According to IGD, a food-and-grocery-industry think tank, the number of superstores in Britain shot up from 403 in 1985 to 990 in 1995 but slowed the next year, after passage of new development rules. Designed to protect the economic vitality of town centers, the 1996 rules require developers to demonstrate that a superstore is needed outside town, and there are no available alternatives in the center. "Most of the zoning legislation has got the retailers by the throat," says Haley Meyers, head of European retail research at London-based Mintel Research.

In the early 1990s Tesco foresaw ...