Outlook: Sir Peter does the only thing he can in braving the regulators

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Most bid battles are fought on shareholder value. The one that's broken out among the big supermarket chains will be fought in meeting rooms with regulators arguing the toss on market shares, local monopolies and the average price of a shopping basket. Both Sainsbury and Asda face an almost impossibly uphill struggle in persuading the competition authorities to allow their bids for Safeway, even taking account of the parallel offer of store disposal programmes, and they both know it. None the less, both of them also figure that such a prize comes up so rarely that they they wouldn't be doing their jobs if they didn't at least try.

Sainsbury first. In my book, it doesn't stand much of a chance, but it does stand a better chance than Asda. The initial plan had been to bid in conjunction with Asda, but the two burnt bridges in rowing about division of spoils and rapprochement seems unlikely. In any case, Sir Peter Davis, chief executive of Sainsbury, may be right in thinking he's better off arguing his case with regulators alone than with the Wal-Mart-owned Asda.

Sir Peter has the least impressive pricing benefits. As things stand, Sainsbury is only 4.7 per cent cheaper on an average shopping basket than Safeway. That compares with 8 per cent for Wm Morrison and an astonishing 15 per cent for Asda. On prices, then, there's no contest. Both Morrison, and particularly Asda, are streets ahead of Sainsbury. Fortunately for Sir Peter, that's not the only argument the competition authorities will take into account.

Sainsbury admits to being more expensive, but claims better quality and a bigger range. Also, there's absolutely no doubt where British farmers and suppliers will swing their weight given the choice of the three. Sir Peter doesn't overtly play the national card, but he's draping himself in the union flag all the same and his pitch is very much that the UK supplier base is in safer hands with Sainsbury than either of the other two. The broader public interest is best served with us, he says.

So what about Asda, which barring last minute hitches, will enter the fray either today or tomorrow with very much the same sort of indicative offer as Sainsbury (neither company wants to get into a bidding war before the competition issues are resolved)? Asda will be selling its case to regulators purely on price. When Wal-Mart bought Asda in 1999, it promised to bring every day American low prices to these shores. It has delivered, helping to transform the dynamics of supermarket retailing in the process.

The trick is achieved by applying Wal-Mart's buying power on a global basis, sourcing product from wherever it can be acquired most cheaply. Global manufacturers like Unilever will find themselves boycotted in America if Wal-Mart doesn't get the same prices in Europe as it gets in the US. Its buying policies are cruel, legal and incredibly effective. What it would do to the UK supply base if Asda achieved 25 per cent market share is an interesting question. If you are a consumer, then great. If a supplier, prepare for the worst.

Sir Peter will argue that an Asda takeover will create a virtual monopoly of two, with a couple of also-rans. His own proposal would allow for the creation of three big league players. Better than Asda, then, but still not as appealing to regulators as Morrison, with its plans to create a fourth national force in the groceries trade. Geographically, Morrison and Safeway are a brilliant fit. There is no case for referring the Morrison merger to the Competition Commission and Sir Ken Morrison, the chairman, would feel justifiably aggrieved if he was treated in the same way as the others.

Inevitably Asda and Sainsbury will be referred, at which point Sir Ken will be able to cite the classic bird in the hand being worth more than two in the bush argument, which he will more than likely back with his ace –"I'll be out of the game altogether if you reject me". The City will bet on him being back if the other two are vetoed by the Commission, but don't count on it. Six months is a long time to wait for anyone, but at the age of 71, it's a virtual lifetime. If Sir Ken says he won't be back, he'll mean it.

In such circumstances, the Safeway board will in all likelihood stick with its recommendation of the Wm Morrison bid. Sir Ken may need to raise his offer a bit, and he's certainly got some persuading to do in convincing the City he's up to the task of integration. Sainsbury's presentation of its integration plans yesterday was impressively slick and detailed, in marked contrast to Sir Ken's failure to say much about his plans at all. On the other hand, let's not forget that the last time Sainsbury did a big UK integration, that of Texas Home Care into Homebase, it was a disaster. Big merger integrations are never easy. There's no reason to believe, I would suggest, that Sir Ken will be any worse at it than Sainsbury.

I'm not particularly batting for Sir Ken, who I hardly know, and certainly Sir Peter Davis shouldn't be faulted for trying, daunting though his task may seem. It's a bold and gutsy move by Sainsbury, made all the more so by the conservatism of the board and the controlling, Sainsbury family trust. Even a long shot is better than no shot at all. But I don't think Sir Peter will ultimately succeed, or not on the present quite limited store disposal plan, anyway.

As for Asda, which can afford to pay the most, it made a possibly fatal error by not bidding first. It must have something to do with being run from Bentonville, Arkansas, but Wal-Mart has been too slow in its decision making. If Asda had bid before Christmas at say 350p a share in cash, nobody would have been able to match it and Wal-Mart might have had the Competition Commission investigation to itself.

So full marks to Sir Peter again for tying Asda up in knots over the idea of a joint bid that was never to be. Meanwhile, don't forget Tesco, sitting there on the sidelines, desperately wanting to enter the game but knowing that as market leader it couldn't credibly do so. For Tesco, the worst outcome is an Asda victory, the best, the Morrison tie-up. I may not be batting for Sir Ken; Sir Terry Leahy, chief executive of Tesco, most certainly will be.

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Steve Case is leaving Time Warner AOL (well, not quite, as he remains a director) with his tail between his legs, forced out by the corporate governance police, but the truth of the matter is that persuading the media powerhouse of Time Warner to merge with American Online was one of the greatest business coups of all time – great, that is, for AOL's shareholders, an absolute disaster for Time Warner's.

It's a thin line that separates the over enthusiasm of the entrepreneur for his company and business from outright misrepresentation, and Mr Case suffered from the characteristic in spades. Mr Case is credited with bringing e-mail and the internet to the masses, but his company always was a bit of a candy floss creation, and as broadband takes hold, its structural and strategic failings are becoming ever more apparent.

Even so, the man to blame for the value destruction of the Time Warner AOL merger is not Mr Case, who struck an amazingly good deal for his shareholders, but Gerald Levin. The Time Warner chief executive naively gave away value on an heroic scale.

Not that Mr Case can be regarded as blameless. The merger was flawed not just in concept but in implementation too, and although Mr Case is to be admired for spending much of the first two years of the "integration" (if that's the right word for a merger which appears to have achieved no integration at all) nursing his sick brother, he shouldn't be surprised that shareholders are still looking for retribution.

Mr Case promised he'd be chairman for 15 years when the merger was announced in altogether headier times. He still thinks that in time the merger will be judged a success. It may be a long wait. In the meantime, Mr Case can at least take comfort in the fact that he managed to cash in $100m of stock while the price was still relatively high. Other shareholders can only curse themselves for staying loyal to Mr Case's vision.

jeremy.warner@independent.co.uk