Morrisons sweetens Safeway offer

- Last updated on GMT

Related tags: Asda

The long-running saga of the takeover of British supermarket chain
Safeway appears to have entered its final phase today with the
announcement by rival Morrisons of a £3 billion offer for the
company.

Morrisons​ began the Safeway​ saga back in January with a £2.9 billion offer for the company, prompting the country's other leading supermarket groups to join the fray. But the bids from Tesco, Asda and Sainsbury were blocked by the competition authorities, leaving Morrisons as the sole trade bidder.

Most of the subsequent speculation has centred on what price Morrisons would offer for Safeway. The company had been expected to make a slightly lower offer for the company, whose trading performance has suffered as a result of the year-long delay, but some sources suggested that Morrisons would at least match its earlier bid in order to keep the Safeway board happy - a move which would make the tough job of integrating the two companies a lot easier.

In the end, common sense prevailed, with Morrisons in fact offering slightly more for Safeway than its original bid - some 283 pence per share instead of 277.5 pence in January, a premium of 33 per cent over Safeway's share price on 8 January, the day before Morrisons made its initial offer for the company.

The logic behind the takeover of course remains unchanged. A merged Morrisons/Safeway group will generate substantial cost savings - some £215 million a year by January 2008, Morrisons estimates - and will be a powerful fourth player in the highly competitive UK food retail sector, with combined sales of £13 billion and 552 stores.

Morrisons will be obliged to sell 52 stores as part of the takeover agreement after the UK authorities decided last week that a 53rd store did not have to be sold.

Safeway has long struggled to compete with the more price-driven retailers such as Asda, Tesco and Morrisons itself, and the conversion of Safeway's stores to the Morrisons format should give the company a major boost. Morrisons said that its like-for-like sales were up 9.6 per cent for the 17 weeks ended 7 December, a far better performance than that of Safeway. It posted like-for-like sales growth of just 0.1 per cent in the six months to 11 October.

Morrisons' format and prices will be introduced into the larger Safeway stores to improve their operating performance, the company said.

"The logic of combining Morrisons with Safeway is every bit as powerful today as it was a year ago,"​ said Sir Ken Morrison, executive chairman of Morrisons. "This merger will be a transforming step for Morrisons, enabling us to take the distinct Morrisons formula and our passion and flair for food retailing to customers everywhere in the UK."

Safeway's management also welcomed the agreement - despite speculation that the company would perhaps seek a much higher offer following an unexpected £2 billion offer last week from Asda for 70 Safeway stores.

David Webster, chairman of Safeway, said: "In January we chose to merge with Morrisons because we believed it was the only deal that was both in the interests of shareholders and likely to win regulatory approval. I am delighted we have now secured the merger that has always been our preferred outcome.""We are confident a great future lies ahead for Safeway as part of a strengthened Morrisons."

The hard task now will be to merge the two companies, which have vastly different management styles and trading policies. But at least Morrisons has had a year to start thinking about how to implement this strategy, and with the support of the Safeway board, the merger should go relatively smoothly.

Related topics: Retail & Shopper Insights

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