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For months, the speculation has been that faltering UK grocery retailer Safeway would be sold, with Wal-Mart’s Asda Group usually mentioned as the likely buyer.

Early this morning, the rumors all came true…except for the Asda part. Instead, it was grocery chain Wm. Morrison that acquired Safeway, the UK’s fourth largest food retailer, for the equivalent of $4.6 billion.

The combined chain will have sales of about $20.3 billion (US), a 16.1 percent market share, and close to 600 stores. In a statement, Morrison said that the acquisition signals the "creation of a major new national force in UK food retailing.” Its market share would be roughly equivalent to Asda.

Tesco has about 25.8 percent of the market, while Sainsbury has 17.2 percent.

Regulatory approval is expected, since the two companies’ locations are largely complementary, and because the deal will allow them to compete more effectively with the big three.

Safeway CEO Carlos Criado-Perez and Chairman David Webster reportedly will leave the company if the deal goes through.

Morrison reportedly plans to convert 250 Safeway stores to its banner, while keeping smaller stores under the Safeway name.
KC's View:
The numbers suggested that Safeway was hard-pressed to meet the sale growth being demonstrated by Tesco, Asda, and Sainsbury. This consolidation probably solves the short-term problem, but the company will still have to find ways to compete with and differentiate itself from the big three UK food retailers.

Not an easy task. Not at all. This move probably will instigate further price wars among the top players, and we all know how well Wal-Mart/Asda is going to take the notion of having this new company nipping at its market share heels.

Grab the flak jackets and helmets, folks. It’s gonna get ugly…