business news in context, analysis with attitude

The frenzy to acquire Safeway Plc has reached astounding proportions, with seemingly every retailer in the UK considering a bid for the company. In fact, it’s gotten so that it is difficult to tell the players without a program…

So, we asked our friends at PlanetRetail.net to give us exactly that, a kind of racing form that identifies all the players (to date), defines the issues, and gives their odds for success. They’ve done exactly that…and with the style and precision that we’ve grown to expect from them…

1) ASDA/Wal-Mart

Offer
Likely to be cash.
Regulatory issues
Would have to sell regional batches of stores. Will be less acceptable to Competition Commission than the Morrison bid.
Motivation
Overtake Sainsbury’s and challenge Tesco for leadership. Wal-Mart doesn’t like being number three in any market. A few larger stores will be suitable for conversion to ASDA Wal-Mart Supercentre format.
Problems?
Safeway customers at different end of the spectrum – use to more upmarket shopping, with high-low promotions rather than EDLP. Many shoppers will take time to get used to “cheap and cheerful” ASDA approach. Many of the Safeway stores are too small to house anything but the smallest of general merchandise ranges.
Resultant market share
21.9%
Likelihood of winning?
9/10


2) KKR, Texas Pacific etc

Offer
Likely to be cash
Regulatory issues
None.
Motivation
Hard to say – but likely to be one of three motives. Making a profit by selling Safeway piece by piece to other supermarket groups; making a profit by running the business in the short- to medium and then selling it on in its entirety; or installing a new management team and attempting to operate Safeway more successfully than at present. The reputation of venture capitalists in general suggests that the first two scenarios are more likely.
Problems?
Both Safeway and the Competition Commission are thought to favour a trade bid as it is less likely to endanger jobs. Businesses such as KKR and Texas Pacific will have to outbid Wal-Mart – it will be difficult to engineer a decent return at such a price.
Resultant market share
10%
Likelihood of winning?
6/10


3) Morrison

Offer
Only shares at present, may soon include a cash component.
Regulatory issues
Store duplication runs to less than ten stores, not really enough to overly concern the authorities. Is more likely to be looked on favourably than other trade bids as it creates a larger rival to challenge the Tesco/Sainsbury/ASDA oligopoly.
Motivation
Expansion of Morrison chain into the South-East of England and will provide a boost to Morrisons’ presence in Scotland. The business has been frustrated by the slow pace of organic growth and planning difficulties – this is a fast-track route to growth.
Problems?
As in the case of ASDA, many Safeway shoppers will be oblivious to the Morrison shopping experience, and may not necessarily like what they find. Although a quality operation, Morrison has a very different trading style and clientele to Safeway. Another risk is that the company has had very little experience of M&A activity. Pockets are shallower than Wal-Mart’s to ay the least.
Resultant market share
16.1%
Likelihood of winning?
8/10


4) Philip Green

Offer
Likely to be cash.
Regulatory issues
None.
Motivation
Mr Green is a savvy trader with a strong track record of buying up underperforming and/or undervalued retail businesses and either selling them on or turning them around. Has already acquired Arcadia clothing chains and the Bhs variety chain, seems to be looking to expand his not inconsiderable empire into food retailing. Has friends and acquaintances with decent grocery experience who could run Safeway day-to-day. Has strong financial supporters who seem willing to back him.
Problems?
Little or no personal experience of supermarket operations and is currently occupied with the ongoing recovery at Bhs and assimilating his Arcadia clothing brands. Faces the same problems as KKR and Texas Pacific of having to outbid Wal-Mart. He and his allies are rich, but they’re not that rich.
Resultant market share
10%
Likelihood of winning?
6/10


5) Sainsbury’s

Offer
Shares & cash.
Regulatory issues
A real worry in the South-East where both Safeway and Sainsbury have a strong presence. Will take the combined company well over the 25% market share guideline issued by the competition commission. Enforced sell-offs could be fairly hefty.
Motivation
Would put Sainsbury neck and neck with Tesco as the UK’s number one food retailer, fending off the challenge of ASDA to overtake it. Would provide market leadership in Scotland at a stroke. Sainsbury’s and Safeway are the closest fit in terms of customer profile, pricing strategy, retailing style and average store size.
Problems?
Sainsbury’s is still getting its own house in order without the added distraction of integrating an even weaker player. Store disposals in the South-East would be handing over ammunition to ASDA, Tesco and Morrison. Debt levels from outbidding Wal-Mart would be eyebrow-raising.
Resultant market share
26.4%
Likelihood of winning?
7/10


6) Tesco

Offer
Shares & cash.
Regulatory issues
The word monumental springs to mind. Tesco is already near the 25% market share threshold, Safeway would send Tesco crashing well over 30%. Mandatory store disposals would be massive, especially in the South-East of England, although Tesco would be more optimistic in the North and Scotland of hanging on to a few stores. Simply not worth the bother.
Motivation
Gets to look at the Safeway books and muddies the waters around competing trade bids. At best, will be hoping to acquire a few supermarkets and several petrol station c-stores.
Problems?
The competition issues make the whole bid a non-starter. Shows Tesco has a sense of humour.
Resultant market share
33.3%
Likelihood of winning?
2/10