Over the next six weeks, Morrisons will consider the pros and cons of mounting a fresh bid for Safeway, the supermarket chain that has been the focus of a four-way battle among the U.K.'s top supermarkets since January.
"Merging with Safeway will allow Morrisons to accelerate the rollout of its successful and popular retail format across the U.K., providing consumers with a distinctive offering and unlocking the benefits of scale for shareholders," said Chairman Sir Kenneth Morrison in a statement issue late last month.
"However, our duty to our shareholders is to carry out a thorough assessment of the implications of all developments since the lapse of our bid and any conditions attached to our proposed clearance by the Secretary of State. We will only proceed with any new bid if it is in our shareholders' best interests."
On Sept. 26, U.K. Trade and Industry Secretary Patricia Hewitt ruled in a 520-page document that of the four Safeway suitors, only Morrisons could proceed with a bid, and that it would have to dispose of 53 Safeway stores if that bid were to be successful. In addition, Hewitt asked the other three contenders -- Tesco, Asda and J Sainsbury -- to refrain from bidding for all or any part of Safeway for at least five years.
After Hewitt's announcement, Tesco and Sainsbury both said they were disappointed -- but not surprised -- by the decision, which essentially seconds a conclusion by the Office of Fair Trading earlier this year. For its part, Asda said it has no plans to mount a legal challenge. All three, however, will be able to bid for the 53 stores that Morrisons will have to sell if it decides to proceed with a bid.
British Home Stores and Arcadia owner Philip Green, the only Safeway suitor not to have been referred to Hewitt, is still contemplating a bid for Safeway.
Morrisons said in its statement that any new offer would come within 21 days after its discussions with the Office of Fair Trading. Although the timetable is still hazy, industry sources here said that if Morrisons decides to move forward, a bid will likely come at the end of November. Morrisons' $4.8 billion bid for Safeway, tabled in January, has lapsed. Meanwhile, industry observers said Asda -- neck-in-neck with Sainsbury for the No. 2 market share slot after Tesco -- has the most to lose if Morrisons buys Safeway.
"Losing to Morrisons is a double whammy for Asda," said Richard Hyman, chairman of Verdict Research, a retail consultancy here. "This was Asda's only opportunity to close the gap with Tesco. Asda's and Wal-Mart's goal is to dominate every market they enter, and they lost their chance in the U.K."
Hyman added that Asda will also face competition on the pricing front. Morrisons and Asda both inhabit the value segment of the market, while Tesco has laid claim to the middle ground, and Safeway and Sainsbury are on the premium end. "If Morrisons buys Safeway, it will be three times as big as before. But it also means that Safeway will go from the premium to the value segment. The market will automatically become more competitive and price-driven," Hyman added.
Rhys Williams, retail analyst at Seymour Pierce in London, said that Morrisons' pricing was as competitive as Wal-Mart's; if it captures Safeway, it will be able to develop a major nonfood offer, where Asda is already very strong. "There is huge growth potential for nonfood at Morrisons and Safeway," Williams said.
Meanwhile, Richard Fitzpatrick, head of Retailmap, a U.K.-based retail research and consulting firm, said that Morrisons could give Asda a run for its money.
"Of all the competitors, Morrisons is closest to Asda in terms of its price/value message. Like Wal-Mart, Morrisons is a very common-sense company with a homespun philosophy. It's imbued with that Yorkshire, no-nonsense spirit. If Morrisons goes through with its bid, Asda is suddenly going to have a low-priced competitor on its hands."