Outlook: What will Sir Ken pay to walk down the aisle with Safeway?

TBI takes off; Scotched; Charitable act

Only 20 bidding days left to Christmas if Sir Ken Morrison wants to tuck Safeway in his shopping trolley before he goes off to carve the turkey. Wm Morrison, the only one of the supermarket groups cleared to bid for Safeway, would like to wrap up a deal before the end of the year. Now that the Office of Fair Trading has completed the laborious process of securing undertakings on the 53 stores Morrison's must dispose of, the only thing standing in the way of Sir Ken and his prize is the formal go-ahead from Patricia Hewitt.

That and the small matter of how much he is prepared to pay, of course. The ace in Sir Ken's hand is that he is the only trade buyer left standing. Such were the conditions imposed on store disposals to any of Safeway's other competitors, that financial buyers have also effectively been barred from the auction.

Assuming Sir Ken does not go hostile, the question then is how much he is willing to pay to secure a recommendation from the Safeway board. Back in January, when Morrison's began its game of Supermarket Sweep, its agreed all-share offer was worth 277.5p a share, valuing Safeway at £2.8bn. If the Safeway share price had continued to track that of Morrison's to the penny, it would now stand at 294p. In fact it closed last night at 283p - a discount of 4 per cent.

The market thinks Sir Ken is going to live up to his reputation as a tight-fisted Yorkshireman and come back with a low-ball offer based on Safeway's indifferent trading performance since January.

Safeway thinks he can afford to pay more and here's why. Morrison's is already guaranteed to make £600m from the 53 Safeway stores it must dispose of. They only represent 10 per cent of Safeway's floor space. But the whopping great premium is explained by their scarcity value since assets like this do not come on the market very often.

Second, Sir Ken is buying more than just a supermarket chain. He is acquiring a comprehensive distribution network with a fancy IT system thrown in which will enable Morrison's to transform itself from a regional player based in the North to a nationwide grocer.

Third, Safeway comes with a landbank and planning permission for up to 33 new stores whereas Sir Ken went into the Competition Commission inquiry wearing the retail equivalent of the emperor's new clothes. He has barely any room for expansion so he needs Safeway even more if he is to keep on growing.

Fourth, there is the goodwill to think about. Sir Ken needs the support of the Safeway management to make the transition from regional to national player work. Alienate them with a cheap offer and they will vote with their feet, making the task that much harder.

Add all that together and you come up with Safeway's very own "red line" which a renewed Morrison bid needs to cross. Before Sir Ken was packed off to the Competition Commission along with Tesco, Wal-Mart/Asda and J Sainsbury, there was talk of him adding 50p in cash to the bid. That would value Safeway at £3.4bn.

Wal-Mart would have paid that and more given the chance but that is history. In this season of goodwill to all men, it depends on how festive Sir Ken is feeling.

TBI takes off

Running airports is a fast moving business and we're not just talking about the speed with which the jets leave the runway. On Wednesday evening the chief executive of TBI, the operator of Luton airport, described stock market rumours of a bid approach from an unnamed European construction company as "absolute rubbish". On Thursday morning, Hochtief, the German construction company, landed with the announcement that it was "considering the merits of a potential acquisition of TBI". Sometimes you wonder how the market manages to keep one step ahead of events so often.

Keith Brooks, the man in the jump seat at TBI, has been here before. In August 2001 the French construction company Vinci made an offer of 90p for TBI shares. The company rejected the bid and a fortnight later the Twin Towers were hit by two hijacked aircraft. TBI shares crashed along with the news. Brooks and the TBI board rapidly switched course and recommended the bid but by then the French had already packed their bags and gone home, citing "material adverse change".

There is no guarantee a bid will land this time. Hochtief was careful to say that its review of TBI is at a preliminary stage and that no approach has as yet been made. But TBI will not want to let another bidder slip through its fingers. The shares halved after the attack on New York and have struggled to stay much above 60p ever since.

Yesterday they ended above 70p and if a bidding war breaks out between the French and Germans, they could even reach the heady heights of 90p again.

Mr Brooks has big plans for TBI and envisages little Luton one day challenging Heathrow as London's premier airport. He reckons that with another runway and a second terminal, he could boost passenger numbers from 7 million today to 60 million. The only problem is that he lacks the capital to match his ambitions but a sugar daddy with deep pockets like Hochtief could solve all that.

Vinci still owns 15 per cent of TBI. But there are others waiting in the wings, including Dermot Desmond, the owner of London City airport who also has a 5 per cent stake in TBI.

The casting vote will rest with the TBI chairman Stanley Thomas, who turned it from a sleepy Welsh property company and still owns 10 per cent of the action. What will he say if Hochtief does come calling? "Were you truly wafted here from paradise?" "No, Essen airport, actually."

Scotched

The way that Jim Naughtie spat out the word Diageo on the Today programme yesterday morning, it looked like the drinks company was going to get lynched north of the border for re-inventing Cardhu as a "pure malt". In the event, the row turned out to be the proverbial storm in a whisky glass.

Diageo can make Smirnoff vodka and Guinness wherever it wants, thundered the Scotch Whisky Association, but single malts can only come from one distillery. To create something called a pure malt which sounds like a single malt but is in fact a blend of malts threatens to undermine the whole industry.

Paul Walsh, the pugnacious boss of Diageo, was at first unrepentant, explaining in his business-speak way that unless it could blend Cardhu from several different distillers it simply could not keep up with demand. History and tradition versus "premiumisation" as Mr Walsh calls it. Or, put another way, Monarch of the Glen, versus Sex in the City, which is the programme Diageo sponsors.

In the event, Mr Walsh has compromised. Cardhu will still be called a pure malt but it will appear in different coloured and different shaped bottles accompanied by an advertising campaign to explain how different it is from the old product.

Diageo may be the biggest spirits company in the world and it may control a third of the scotch market, but it just goes to show that it pays to remember your roots.

Charitable act

British Energy has just gone back to the Government for an extra £75m in emergency funding while it awaits approval from Brussels for a £3bn bail-out from the taxpayer. So you would have thought it would be a case of charity beginning at home. Not so. The nuclear power company has just announced that its charity for the year will be the Royal Association for Disability and Rehabilitation which co-ordinates the work of 500 different organisations working for the disabled. If BE's staff can raise £100,000 the company will match it. A generous gesture from a business which could justifiable have looked the other way.

michael.harrison@independent.co.uk