Morrisons cleared for Safeway bid
Rivals blocked as Hewitt orders 53 store sell-offs September 26 2003 Morrisons has been given the green light to bid for Safeway, while rivals Tesco, Asda and Sainsbury’s have had their potential bids blocked on competition grounds.In a widely expected ruling, trade and industry secretary Patricia Hewitt said Morrisons would have to sell 53 stores, either from Safewayâ€™s total of 480 or its own stores, in areas where the overlap with existing Morrisons stores would reduce local competition significantly. Forty-eight of the Safeway outlets are larger supermarkets, while the remainder are smaller stores.
Any of the'big three' whose main bids are blocked would be allowed to acquire some of these stores, depending on crossover of catchment area with existing stores. Other operators including the Co-op, Waitrose and Marks & Spencer are also likely to take a look at the stores going on the market.
Hewitt said: "I have considered carefully the CC's report and agree with their conclusions that an acquisition of Safeway by Asda, Sainsbury's or Tesco may be expected to operate against the public interest at both a local and national level. A number of adverse effects were identified by the CC including an increase in prices over time, stemming from a reduction in the number of national supermarket operators from four to three.
"I have accepted their advice that no reasonable package of divestments would remedy the national competition concerns raised in these cases.
"I also agree with the CC's conclusions that the proposed acquisition of Safeway by Morrisons may be expected to operate against the public interest, but that store divestments where local competition concerns arise are sufficient to remedy the adverse effects identified."'
The commission undertook a detailed analysis of local markets in order to identify areas where local competition issues arose and divestment would be necessary, using a criteria of a reduction to three or fewer supermarket operators in one locality.
Competition Commission chairman Sir Derek Morris said: "I am pleased that our report and recommendations have been accepted in full. If Morrisons are successful with their bid for Safeway we would expect them to become a strong national player.
"They should exert a positive competitive effect on the grocery retail sector, and benefit shoppers."
Morrison triggered the investigation when it launched a recommended £2.9bn all-share offer for Safeway in January. That bid has now lapsed, and Morrisons has indicated that it may consider reducing the offer in light of poorer sales at Safeway this year.
However, Bhs and Arcadia owner Philip Green is clear to bid at any time, and has been waiting for the ruling before deciding on his next move. An all cash offer from Green might appeal to Safeway shareholders, and could force Morrisons to increase its offer or sweeten it with cash. There could also be renewed interest from private equity bidders hoping to asset strip Safeway, although the report has been couched in terms that would make it harder to sell stores on to the big players.
Safeway issued a statement saying it would study the report and make any further anouncements as appropriate. The company said "it has great confidence in the intrinsic strengths of Safeway's business and the value of its predominantly freehold property portfolio."
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