Dismay as Safeway directors check out of Morrison

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WM Morrison yesterday dismayed the City by revealing that it had driven away the only two Safeway directors expected to join the enlarged group's board as it unveiled a sharp fall in Safeway's sales.

The Bradford-based group said Lawrence Christiansen and Jack Sinclair would join the exodus of Safeway board members once the £3bn takeover was completed, leaving its seven directors to run what will become Britain's fourth biggest supermarket chain.

Morrisons, which had previously promised that both men would stay on, said its total takeover-related costs had tripled to £33.5m. The bill, which was disclosed yesterday in its formal offer document, will soar further once Safeway's costs are included, although its decision to implement the deal via a scheme of arrangement will save it £14m in stamp duty.

Analysts were alarmed by the news of Messrs Christiansen and Sinclair's departure, which they said amplified the huge integration hurdles facing Morrisons. "It makes the task much more risky. It was already paramount that they managed to keep as many people as possible, and now they are leaving. If there were cultural reasons [for them to go] it is even more worrying," one food retail analyst said.

It is understood that Mr Sinclair, Safeway's trading director, opted to leave after falling out over his future role, given its overlap with that of Morrisons' Marie Melnyk. Meanwhile, Mr Christiansen is thought to have upset Morrisons by being unwilling to postpone indefinitely his plans for retirement. The 60-year-old operations director, who built up Safeway's current logistics network, would be the most sorely missed, analysts said.

Like his fellow Safeway directors, Mr Sinclair can look forward to a hefty pay-off. He is in line to receive at least £360,500, while David Webster, the chairman, will pocket £1.2m. Carlos Criado-Perez, the chief executive, will receive a £1.4m pay-off on top of as much as £4m formerly agreed under a special incentive plan.

The formal offer document, which was posted to shareholders yesterday, revealed the extent of Safeway's deteriorating trading performance: group underlying sales accelerated from a 2.5 per cent decline in the first half of its financial year to fall 4.1 per cent during its third quarter to 3 January. This was in stark contrast to Morrisons' 10.2 per cent leap in underlying sales over the Christmas period.

Although Safeway said its profit for the quarter was slightly ahead of last year's, analysts said the sales shortfall would increase the pressure on Sir Ken Morrison, the 71-year-old son of the group's founder, to slash prices across the enlarged group's 552 stores as soon as the deal completes in March. Sir Ken was bullish about the group's prospects, saying he was still "confident" that his group would be able to integrate Safeway "swiftly and effectively". Morrisons' shares slipped 2p to 228.5p, while Safeway also fell 2p, to 286.25p.