SAFEWAY AND MORRISON

Safeway and Morrison

Safeway and Morrison

Morrison

Safeway's financial statements

Economic Condition

Farm leaders have welcomed the government's decision to allow Wm Morrison Supermarkets to take over Safeway which could create a strong fourth player in the market. Morrison was the farmers' favourite in the race to take over Safeway. Last week trade and industry secretary Patricia Hewitt accepted the Competition Commission's proposal to clear the company's bid. She also blocked any takeover by Tesco, Ads Wal-Mart or Sainsbury because they would operate against the public interest.

The NFU said the government had shown common sense in making its decision. "We are glad to see that a considered approach has been taken on the question of further consolidation in the retail sector," said head of marketing, Robin Tapper.

"Farmers will not be thrilled about the prospect of further concentration of retail power in the food chain. But the potential loss of Safeway needs to be seen in the context of the corporate philosophy of Morrison."

Mr Tapper said this chain had a good understanding of British agriculture and a well-built commitment to regional and local sourcing of produce. It also operated its own processing and packing capacity for red meat and fresh produce.

Morrison will have to dispose of 53 stores if the acquisition goes ahead and is already in negotiations with the Office of Fair Trading (Chamberlain, 1992). Industry pundits do not expect a bid for another three months, and would not speculate on whether the company will raise its original now lapsed all share bid of £2.9bn.With the "big three" retailers blocked from any takeover, it is possible that a private buyer like Arcadia's Philip Green could step back into the battle. But the OFT will block Tesco, Ads or Sainsbury from buying any part of the business divested by a private buyer. Any statement that causes the share price to rise can hardly be called a profits warning, and in any case Wm Morrison Supermarkets had so thoroughly prepared investors for more bad news that when it was actually released yesterday it came as something of a relief. There was no warning on sales, or even directly on profits. Rather, the bad news was confined to profit margins, which Morrison's had said would show a modest improvement this year but it now transpires will be significantly lower.

Bob Stott, the chief executive, thought the announcement so unimportant that he wasn't even around yesterday to explain it; he was on holiday. Investors were instead left to figure out for themselves quite how it was that the company had failed to anticipate the duplicated costs which have caused the decline in profit margins. The execution of Morrison's merger with Safeway has been a textbook study on how not to do it. Yesterday's warning that the the dual costs of distribution, IT and administration involved in running two supermarket chains were taking longer to unwind than anticipated is just the latest example of the befuddlement that has characterised the integration. This ought to have been a marriage made in ...