Safeway and Asda forced to abandon pounds 9bn merger plan

Safeway and Asda were yesterday forced to abandon talks about a pounds 9bn merger after news of the discussions leaked and it became apparent that the deal would probably have been blocked by competition authorities.

Michael Harrison reports on the deal that never was and the recriminations that have followed.

Plans to create Britain's biggest supermarket group were shelved last night after Safeway and Asda said they had discontinued exploratory discussions.

A merger between the two would have created a supermarket giant with 15.3 per cent of the UK's pounds 85bn-a-year food retailing market, 600 stores and 125,000 employees, outstripping Tesco and Sainsbury in size.

But Safeway and Asda abandoned talks after news of their discussions emerged in the weekend press. The two companies said they had been prepared to proceed only if the talks remained confidential and the deal was not referred to the Monopolies and Mergers Commission.

But observers said last night that the chances of the deal escaping a referral had already been slim and became non-existent after the premature disclosure of the talks.

Safeway's chief executive, Colin Smith, approached Asda's chairman, Archie Norman, and chief executive, Allan Leighton, about a possible merger in April. The two companies submitted a joint proposal to the Office of Fair Trading in July and had been due to receive confidential guidance in the next few days on whether the deal was likely to be referred.

The President of the Board of Trade, Margaret Beckett, is understood to have been aware of the merger talks but her office had received no formal recommendation from the OFT. However, Mrs Beckett, now referred to in some quarters as Mrs Blockit because of her tough stance on mergers, is thought unlikely to have approved it without an MMC investigation.

The merger would have produced savings of about pounds 200m a year through the combination of purchasing, information technology and marketing budgets and there would have been in the region of 1,000-1,500 one-off job losses.

The rationale behind the merger was to have been to create a third force in the UK supermarket capable of taking on the two market leaders, particularly in the South-east, where Tesco controls 70 per cent of the superstore market. Asda has an ambitious pounds 260m plan to double its chain of hypermarkets with 13 new openings by 1999.

Last night conflicting accounts of how the merged group would have been put together and operated were emerging, however. The Safeway camp said it would have been a merger of equals to create a joint stock company. Safeway is capitalised at pounds 4.3bn while Asda is valued at pounds 4.9bn. No decisions had been made on who would run the combined operation, whose head office would close and which brand name would be retained.

But the Asda camp said it had been approached on the basis that it take Safeway over. There was no question of it being a joint stock company, Asda would have led the merger and Mr Leighton would have been the chief executive. In a memo sent to Asda's 42 general managers yesterday, Mr Leighton stressed it had always planned to remain separate. "We did have some discussions starting a few months ago because we felt it would be interesting to explore what Safeway had to say," he wrote. "We were not then and we are not now looking for another company to join with."

Supporters of the merger say it would have enhanced competition because Tesco, with 15 per cent of the market, and Sainsbury, with a 13 per cent share, would have had a powerful rival able to cut costs and pass savings onto customers. But it was said that the disclosure of the talks made it impossible for the two sides to continue discussions given the damage that could have been done to staff morale, customer loyalty and relationships with suppliers.

Reports that Safeway had earlier approached Marks & Spencer or that it might seek to link up with a US retailer were strongly denied but observers said it might now seek to buy a smaller chain.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Tax Manager / Accountant

£35 - £50k DOE: Guru Careers: A Tax Manager / Accountant (ACA / CA / CTA) is n...

Ashdown Group: Contracts Executive - City of London

£35000 - £37000 per annum + benefits: Ashdown Group: Contracts Executive - Cit...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K: SThree: SThree Group have been well esta...

Recruitment Genius: Call Centre Debt Collector - Multiple Roles

£21000 per annum: Recruitment Genius: This is an exciting opportunity to join ...

Day In a Page

Giants Club: After wholesale butchery of Idi Amin's regime, Uganda’s giants flourish once again

Uganda's giants are flourishing once again

After the wholesale butchery of Idi Amin's regime, elephant populations are finally recovering
The London: After 350 years, the riddle of Britain's exploding fleet is finally solved

After 350 years, the riddle of Britain's exploding fleet is finally solved

Archaeologists will recover a crucial item from the wreck of the London which could help shed more light on what happened in the vessel's final seconds
Airbus has patented a jet that could fly from London to New York in one hour

Airbus has patented a jet that could fly from London to New York in one hour

The invention involves turbojets and ramjets - a type of jet engine - and a rocket motor
10 best sun creams for kids

10 best sun creams for kids

Protect delicate and sensitive skin with products specially formulated for little ones
Tate Sensorium: New exhibition at Tate Britain invites art lovers to taste, smell and hear art

Tate Sensorium

New exhibition at Tate Britain invites art lovers to taste, smell and hear art
Ashes 2015: Nice guy Steven Finn is making up for lost time – and quickly

Nice guy Finn is making up for lost time – and quickly

He was man-of-the-match in the third Test following his recall to the England side
Ashes 2015: Remember Ashton Agar? The No 11 that nearly toppled England

Remember Ashton Agar?

The No 11 that nearly toppled England
Turkey-Kurdish conflict: Obama's deal with Ankara is a betrayal of Syrian Kurds and may not even weaken Isis

US betrayal of old ally brings limited reward

Since the accord, the Turks have only waged war on Kurds while no US bomber has used Incirlik airbase, says Patrick Cockburn
VIPs gather for opening of second Suez Canal - but doubts linger over security

'A gift from Egypt to the rest of the world'

VIPs gather for opening of second Suez Canal - but is it really needed?
Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

Fashion editor, Alexander Fury, applauds a man who clearly has more important things on his mind
The male menopause and intimations of mortality

Aches, pains and an inkling of mortality

So the male menopause is real, they say, but what would the Victorians, 'old' at 30, think of that, asks DJ Taylor
Man Booker Prize 2015: Anna Smaill - How can I possibly be on the list with these writers I have idolised?

'How can I possibly be on the list with these writers I have idolised?'

Man Booker Prize nominee Anna Smaill on the rise of Kiwi lit
Bettany Hughes interview: The historian on how Socrates would have solved Greece's problems

Bettany Hughes interview

The historian on how Socrates would have solved Greece's problems
Art of the state: Pyongyang propaganda posters to be exhibited in China

Art of the state

Pyongyang propaganda posters to be exhibited in China
Mildreds and Vanilla Black have given vegetarian food a makeover in new cookbooks

Vegetarian food gets a makeover

Long-time vegetarian Holly Williams tries to recreate some of the inventive recipes in Mildreds and Vanilla Black's new cookbooks