Outlook: Somerfield again

OH, THE agony of it for Somerfield chief executive David Simons. A year ago when the market was starting to believe the hype about the synergy benefits to be had out of the merger with Kwik Save, Somerfield shares were soaring and the company even stood on the brink of inclusion in the FTSE 100. With millions riding on share options, Mr Simons was sporting a self-satisfied grin. It said: "I told you so."

Yesterday the City was saying the same thing right back. When it was hatched last year, the Kwik Save deal was seen as a leap too far for a management team to whom size always seems to have been more important than the bottom line. Lured, goggle-eyed, by those clever investment bankers at Warburg Dillon Read, and with Phillips & Drew desperate to flog its Kwik Save stake, Mr Simons charged in with a deal that gave Somerfield sales of pounds 6bn and real buying power.

Unfortunately, what it also gave him was a pitifully poor stores portfolio. The management task of integrating 1,400 mostly grim supermarkets was a daunting one. No wonder then, that earlier this year Mr Simons was cosying up to Safeway, trying to interest it in another little merger.

It should be remembered that Somerfield has been offered for sale to every other major company in this sector, on more than one occasion in some cases, and been turned down every time. With Kwik Save acting as a poison pill to any potential buyer, it is likely to remain friendless even in a food retailing market now in the process massive consolidation.

Somerfield faces a terrible combination of challenges - a long hard slog to improve the Kwik Save portfolio in the face of unprecedented price competition from much more powerful rivals. No wonder the shares look shell shocked.