Supermarket group Safeway has agreed to be taken over by rival Morrisons in a £2.9bn deal, it was announced today.
The pair said the move would create a “dynamic national supermarket group” valued at £5.5bn, with combined sales of more than £12.6bn and a market share of 16.1%.
The group would have 598 stores with selling space of more than 14m sq ft.
The deal brings together the UK’s fourth and fifth biggest supermarket groups.
Morrisons, based in Bradford, is the UK’s fifth largest food retailer, with 119 stores mainly in the northern half of England, while Safeway, based in Hayes in Middlesex, is the fourth largest with 479 stores.
David Webster, chairman of Safeway said: “In the last three years Safeway has turned around, adding 1.5m customers and rebuilding profits. As our market place becomes increasingly competitive a merger with Morrisons offers the best means of accelerating growth and delivering greater value for customers and shareholders.”
Safeway chief executive Carlos Criado Perez said: “This merger provides a fast route through the next stage of our strategy to increase the profitability of the portfolio.”
Sir Kenneth Morrison, executive chairman of Morrisons, said: “Merging with Safeway will allow Morrisons to accelerate the roll-out of its successful retail franchise across the UK, providing consumers with a distinctive offering and unlocking the benefits of scale for our combined shareholders.”
Morrison said he was not expecting there to be job cuts among the group’s store staff, but the group would be closing the Safeway head office which employs 1,200 people.
Asked whether there would be job cuts, he said: “It will be quite the reverse – we are expecting to open a number of new stores which would probably create 3,000 to 4,000 jobs in shops.”
“But we will be closing Safeway’s head office, and that is expected to incur some job losses.”
He said the office – in Hayes, Middlesex – would be “run down” rather than immediately shut.
Safeway also has an administrative centre near Tyneside, employing 300 to 350 staff, which will be “under review”, he said.
The takeover will create a firm employing around 140,000 staff in total.
Morrisons employs 45,000 staff while Safeway employs 95,000 people.
Morrisons is also planning to rename the bulk of the Safeway stores under its own brand.
Morrison said he would keep the Safeway name only on the group’s smaller stores, which number just over 100. The remainder would be renamed, he said.
The deal has been recommended by Safeway’s board but still has to be passed by shareholders.
Safeway said that, following the deal, Morrisons shareholders would own 53% of the firm while Safeway would own 47%.
Safeway shareholders would receive 1.32 new Morrisons share for each Safeway share held.The offer values each Safeway share at 277.5p.
Shares in Safeway soared nearly 30% to 275p in early trading while Morrisons shares fell 7% to 195p.
Morrison said he did not foresee any problems with competition authorities because there was minimal geographical overlap between the stores.
He said the pair had been in talks for the last few weeks and the deal was completed around midnight last night.
Both Safeway’s chief executive and chairman will leave the firm following the deal, while two Safeway directors, Lawrence Chistensen and Jack Sinclair, have been invited to join the board of the enlarged group.
The deal is expected to be completed by the end of June.
EGi News 09/01/03
