It has taken six months, 500 pages, more than a million pounds of taxpayers' money and a lot of midnight oil for the Competition Commission to come up with its statement of the bleedin' obvious: When it comes to supermarket shopping, four into three do not go. The decision to bar Tesco, J Sainsbury and Wal-Mart/Asda from buying Safeway, leaving the field open for their smaller rival William Morrison, is clearly the correct one. But it is also the one that was inevitable from the moment Sir Derek Morris and his fellow commissioners sat down to work.
Those City betting firms that preposterously installed Asda as the favourite to buy Safeway as soon as it threw its hat in the ring, simply on the grounds that it could afford to pay more than anyone else, deserved to be taken the cleaners. Punters looking for a form guide as to the likely outcome of the inquiry would have been far better off reading the newspapers, not least this column, which has consistently said that only Morrisons would be cleared to bid with a modest number of store disposals.
This is not to say that the Commission's labours have been a complete waste of time. Weave your way through the dense and arcane arguments, the acronyms and the jargon (starter for ten: what is the "waterbed effect"?) and the picture which emerges could not be clearer. None of the big three, despite their protestations to the contrary, were offering to put Safeway out of its misery for the common good, much less to bring lower prices to shoppers.
In supermarkets, as in any market, more share means more power and that generally equals more profit. Tesco, for instance, would have ended up with a market share approaching that of its next three competitors had it been allowed to swallow Safeway. In Scotland, its share of the grocery market would have been an eye-watering 60 per cent.
The Commission could have bent to the will of the big three by allowing Tesco, Sainsbury and Asda to bid and then selecting the shopping list of Safeway stores they must dispose of to preserve local competition. But, as it rightly concluded, no amount of store disposals would have been sufficient to ensure there was still a viable fourth national player left standing.
Moreover, the greater the number of store disposals, the smaller the merger-related savings available to pass on to shoppers. Not that they would have seen many in the first place, either from the closure of surplus head offices or from the even greater buying power that a larger Tesco or Asda would have been able to exert over their hapless suppliers.
What the Commission's report also illustrates is the extent to which grocery retailing has these days become a state-run industry. Through the competition authorities, the Government decides who can own supermarkets and through the planning process it dictates whether and if so where they can build new outlets. Yesterday's Safeway report has added a new dimension. The Commission has not only selected the 53 stores that Morrison must dispose of in order to acquire Safeway, it has also decreed that these are the only stores that any other Safeway bidder will be allowed to sell to Tesco, Asda or Sainsbury's. To ensure compliance, the OFT will vet the buyers.
Where does the game of supermarket sweep go from here? Safeway's share price fell yesterday, which is a bit odd given that the Commission's verdict was exactly the one the markets had been expecting.
Philip Green, the entrepreneur with the equally colourful turn of phrase, could yet spice things up by bidding. But the betting is that he won't because Mr Green only likes buying companies on the cheap. Moreover, he has undertaken to run Safeway as a grocery retailer which rules out an asset-stripping exercise. To top it all, he is hamstrung by the new curbs on which stores he can get rid of.
If, despite all this, he still decided to put in an offer, Sir Ken Morrison could easily outbid him. The Green bid vehicle Trackdean cannot wring any merger savings out of Safeway because it is not a trade buyer. But Morrisons can and the fine print of the Commission's report reveals that the estimated value of these has risen by almost 50 per cent to £229m since its original bid was referred back in March.
Safeway will argue that the 53 store disposals that Morrisons must make should now command a premium, given the difficulty all supermarkets have in finding their own greenfield sites. Safeway's big five shareholders certainly have every incentive to hold out for a higher price. They own 35 per cent of the company but only 5 per cent of Morrisons. Sir Ken, on the other hand, needs Safeway to gain a foothold in the South and transform Morrisons into a national player. But if he is the only bidder in town he can pay what he wants.
As for the rest of the players, it is without doubt a fabulous result for Tesco's Sir Terry Leahy. As market leader by some distance, he only entered the bidding to make sure that everyone was referred and preferably blocked. A super-charged Morrisons would give Tesco something to think about, but it is difficult to see either of its two nearest rivals closing the gap now that they have been prevented from buying market share.
For Wal-Mart it is a reminder of how fickle politics can be. Tony Blair may have welcomed the Americans with open arms when they bought Asda but Safeway would have been a deal too far by a business which is just too big for comfort.
For Sainsbury's, the outcome could not be much worse. Whilst the tears that Tesco shed yesterday were undoubtedly of the crocodile variety, the contrition felt by Sainsbury's Sir Peter Davis was palpable. Asda has already left it trailing in third place and now there is the prospect of a revitalised Morrisons/Safeway combination snapping at Sainbsury's heels.
As a consolation prize, Sir Peter could try having a tilt at Somerfield, even though he has already been barred from picking up some of its smaller stores, whilst Wal-Mart could pop Woolies in its trolley without breaking sweat.
But is the parsimonious Sir Ken who is sitting pretty. They may have been popping the champagne corks in Cheshunt last night and drowning their sorrows with whisky in Holborn.
But in Bradford Sir Ken surely pushed the boat out and downed a pint of Tetleys.Reuse content