The long-running takeover battle for Safeway will enter its final phase this week when Wm Morrison launches a £3bn cash-and-shares offer.
Both companies' advisers spent the weekend locked in talks, finalising details of an agreed bid that could come as early as today. The offer, which will value Britain's fourth-biggest supermarket group at up to 285p a share, is expected to include £500m cash raised from the sale of 53 Safeway stores that posed local competition issues when combined with the Bradford-based group.
Sources close to both sides said yesterday that a deal was near to being signed, 11 months after news of the pair's intention to merge sparked a six-way takeover battle. Although Morrison has until 29 December to table a fresh bid, Sir Ken Morrison knows he must act this week if he wants to catch the City before its Christmas break. A formal offer document is expected to be sent to shareholders this week.
Any move by Sir Ken would mark the beginning of the end of a bid process that has helped the Square Mile to emerge from recession. Morrison's agreed all-share bid for Safeway on 9 January, then worth £2.9bn, represented the final throw of the dice for the UK food retail landgrab.
The top three supermarket groups - Tesco, J Sainsbury and Asda (using parent Wal-Mart's deep pockets) - the retail entrepreneur Philip Green and the private equity house Kohlberg Kravis Roberts all jumped into the fray, sizing up rival bids for the company.
But the Competition Commission barred Morrison's supermarket rivals from bidding, and imposed such stringent rules on store disposals that it in effect ruled any financial buyers out of the running.
A merger with Safeway would be a transforming deal for Morrison, little-known outside its northern heartland before its acquisition ambitions thrust the company into the media spotlight. It will create a 550-strong supermarket chain, whose 15.6 per cent market share will challenge Asda and Sainsbury for the coveted number two spot in the country's food retailing league. The combined company will have a turnover of more than £12bn and annual pre-tax profits of some £500m.
A £3bn price tag will represent a truce in the valuation war that broke out after Morrison emerged as the only company cleared to bid for Safeway. Although some observers expected the canny Sir Ken to launch a lower bid - citing the deterioration in Safeway's trading performance since January - his anxiety to secure the support of David Webster, Safeway's chairman, and the rest of his target's board prevented him from tabling a low offer.
And although Safeway's rarity value as the last pawn in the takeover game meant its shareholders have been pushing for a higher bid, Morrison's offer will at least now include some cash.
The battle for Safeway is thought to have generated more than £50m in fees for City advisers, from bankers and lawyers to accountants and spin doctors. Safeway alone is thought to have paid its advisers more than £20m.
While Morrison, founded in 1899 by Sir Ken's father, is planning to rebrand the vast majority of Safeway's 480 stores under the bumblebee-coloured Morrison banner, the Safeway brand is expected to live on through 100 smaller convenience-type stores.
If the deal is approved, Morrison will take control of Safeway in mid-February. Up to 1,300 Safeway staff at its Middlesex head office will lose their jobs, with the site marked for closure by 2005. The remaining 1,000 would be moved to Morrison's enlarged headquarters in West Yorkshire.Reuse content