Safeway agrees to Morrison bid
LONDON, England (Reuters) -- Food retailer William Morrison Supermarkets launched a new, agreed £3 billion ($5.2 billion) bid for rival Safeway on Monday to challenge for third position in the UK's supermarket sector.
The offer of 283 pence a share, including 60p in cash, will bring the long-running takeover battle for Safeway into its final stages, nearly a year after Morrison made its first all-share bid of 2.9 billion pounds in January.
Morrison shares rallied as much as four percent to a 14 month high of 232 pence, slightly increasing the value of its offer and helping Safeway shares up to as high as 293-3/4p.
"It's an even better deal for Morrison than before," said Mark Hughes, an industry analyst at stockbrokers Numis Securities, noting that Morrison's previous all-share offer would have been worth 294p per share at current prices.
"The Competition Commission has effectively stopped Safeway from getting the best deal," he said.
Morrison, currently the UK's No. 5 food retailer, was cleared by British regulators to bid for No. 4 Safeway in September, on condition it sold 52 stores. The same ruling also blocked the UK's three biggest supermarket groups, Tesco, Wal-Mart's Asda and J. Sainsbury.
Safeway had been coveted by all of its big supermarket rivals, which were looking for ways to expand in a country with tough planning laws and a shortage of sites.
"I think that Morrison's got it (Safeway) at an absolute steal," said Tim Attenborough, an analyst at BNP Paribas.
Numis Securities' Hughes cut his price target on Safeway shares to 300p from 340p, but thought there was still a chance a rival bidder could emerge, probably a private equity firm.
Sources close to the situation told Reuters on Thursday that Asda had approached Safeway with an offer to buy 70 of its stores for close to £2 billion.
However, family-run Morrison was confident competition regulators would block such a move, and was optimistic of completing its deal by around March 2004.
"Putting Morrison and Safeway together will create a powerful national retailer able to challenge the other three majors," Morrison Executive Chairman Ken Morrison told reporters, calling the deal a "transforming step."
Transforming step
Morrison, which started as an egg and butter merchant in the north England city of Bradford, said it was offering one of its own shares for each Safeway share, compared with its previous proposal of 1.32 Morrison shares for each Safeway share.
It is also offering 636 million pounds in cash, funded from the expected proceeds of selling 52 Safeway stores.
At 283p, the offer is 33 percent higher than Safeway's share price on January 8, the day before Morrison's first bid.
Morrison also said it had continued its recent strong trading performance, with like-for-like sales up 9.6 percent in the 17 weeks to December 7.
Safeway had "just about maintained sales," Ken Morrison told a conference call, adding this was "particularly impressive" given the uncertainty that the takeover battle had created.
Rupert Trotter, a fund manager at Isis Asset Management, said Morrison would make it a powerful competitor to industry No.2 Asda, and particularly No.3 group Sainsbury, which has been losing market share in recent months.
"The Morrison current trading statement just shows how credible this management team really is," he said. Isis has an "overweight" position in Morrison shares.
At 0915 GMT, Morrison shares were 2.7 percent higher at 229p, valuing the firm at about 3.6 billion pounds. Safeway shares were 1.1 percent higher at 287p.
The merged firm will have 552 stores, excluding the 52 which must be sold, and about 13 billion pounds of sales.
Morrison expects to make at least 215 million pounds a year in cost savings, and for the merger to be earnings neutral in the year to January 2005, and enhancing thereafter.
Morrison shareholders will own about 60 percent of the combined group, and Safeway shareholders about 40 percent.
ABN AMRO and Hoare Govett are acting for Morrison in connection wit the deal, while Safeway is being advised by HSBC and Citigroup.
Copyright 2003
Reuters. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
