business news in context, analysis with attitude

Management at Safeway Plc said yesterday that its shareholders are scheduled to vote February 11 on the company's proposed acquisition by William Morrison Supermarkets.

The $5.3 billion (US) purchase of the UK's fourth largest supermarket chain by the fifth-ranked food retailer has been the matter of enormous tumult. Morrison launched the takeover bid, which prompted entreaties by Tesco, Wal-Mart's Asda Group, and Sainsbury - and then, after months of consideration, the UK antitrust authorities finally ruled that only Morrison could bid for Safeway.

If Morrison is successful in its quest to buy Safeway, it will have to divest 53 of Safeway's 479 stores - but will in theory create a much stronger entity with which to compete with Tesco, Asda, and Sainsbury.

The long process has had an impact on Safeway; it reported yesterday that sales for the quarter ended January 3 dropped 4.1 percent. Analysts say that the decline is not good news for Morrison, which will be faced with having to rebuild those sales.
KC's View:
Once the Morrison-Safeway situation gets sorted out, we suspect we'll see the price wars really take off in the UK. There's already all sorts of battling going on in the HBC category, with Tesco and Asda going after Boots.

The goal of the competition authorities in only letting Morrison acquire Safeway was to make sure there were four, not three, viable entities in the food retailing biz. The decision was designed to create an environment that is good for consumers…and we suspect that the authorities will be proven to be correct in this case.