William Morrison CLUB HISTORY We wanted to add a supermarket to our portfolio and the club was divided between Morrisons and Tesco. The Tesco supporters were basing their decision mainly on the supermarket's dominant position as well as media opinion. The Morrison supporters thought the supermarket could be subject to takeover by the big players (!) wanting coverage in the North and those who knew the supermarket, liked it and wanted to invest in it. COMPANY NEWS December 16, 2003 Good value for money? Shareholders and analysts were yesterday split as to whether Sir Ken Morrison, the septegenerian head of the supermarket chain that bears his name, had conceded too much in his eleven-month fight for control of Safeway. On face value, the two bids were remarkably similar. In January Sir Ken put an all-share deal on the table equivalent to 1.32 Morrison shares for every Safeway share. Yesterday, he offered one Morrison share and 60p in cash. One analyst argued that Morrison had overpaid: "The deal has changed quite a lot since Morrison put in its first bid. The market was surprised to discover that Safeway had 10 per cent less space than Morrison thought so there is less scope for it to raise sales densities." Morrison admitted yesterday it would only be able to bolster sales per square foot at Safeway by 21 per cent, rather than the hoped-for 25 per cent. Another analyst pointed out that cost savings at the enlarged group would filter through more slowly because Morrison would now have to invest more money in price-cutting campaigns aimed at enticing back customers. He said: "Morrison is claiming that the deal will be neutral for earnings per share in the first year but it looks to me that it will reduce earnings." However, other analysts pointed out that the value of Safeway's store portfolio had risen considerably in the wake of the Competition Commission's new controls, which will limit the ease with which big players can buy and sell stores. Safeway has already had offers in excess of £600 million for just 39 of its stores. Analysts earlier thought that the grocer would struggle to raise more than £500 million for all 52 stores which must be sold. Safeway shareholders said that, on balance, it appeared that Sir Ken was offering about the same as he did in January. One said: "Safeway's trading is clearly not great at the moment but the positive side is that Morrison is trading very well and the management is pretty confident that it can deliver the synergies it has promised." December 16, 2003 Morrison is rolling in the aisles "I'M Sir Ken Morrison and I'll negotiate." After months during which he may have been in a Bradford spider hole, the chairman of Morrison surfaced at the weekend and started talking terms. The result is not likely to have Safeway shareholders cheering in the streets, but it is probably enough to ensure that Sir Ken can claim victory. The Safeway board had been desperately hoping that he would not use his position as the only allowable trade bidder to make a derisory offer they would have to refuse. Had he pitched even a couple of pennies lower, they might have been forced into that uncomfortable position. Although Sir Ken was keen yesterday to talk down the prize he is now in line to take, his fuming rivals have no doubt that he has got himself a bargain. Since January, when he first made his approach to Safeway, Tesco shares have soared by about 60 per cent. Even J Sainsbury, which has been losing ground in the retail marketplace, has seen its shares bounce back to 292p, having been as low as 215p in April. Yet the price that Morrison is offering for Safeway now amounts to 5.5p more per share than its earlier offer. That is a tribute to the role of the regulator in depriving shareholders of what might have been theirs. Safeway held up remarkably well during the painful months, when the competition authorities crawled over its books and its future was uncertain. Given the unhelpful attitude of suppliers, which were quick to demand tougher terms, its sales performance has been surprisingly strong. Sir Ken now argues that actually, given the way that it measures its floor space, Safeway trades rather more successfully than he had previously believed. Far from being deemed a plus point, however, he argues that it is a negative, since the scope for improving performance to the Morrison level is now rather less exciting. Finding itself put up for auction with only one bidder, Safeway has worked manfully to lift the price. It found many more planning consents than the industry had assumed that it had in train and, in an industry where planning permission can translate quite rapidly into competitive advantage, those extra square feet must have a considerable value. Sir Ken, understandably, is not prepared to hazard a public guess as to what that might be. In order to help him, Asda put in a bid of £2 billion for a parcel of 70 Safeway stores. That news of this seeped into the marketplace was undeniably welcome to Safeway in its efforts to up its price. But it was a serious offer and, if Sir Ken had put his bid too low, the company would have had a duty to pursue it, even though it would have meant an inevitable hold-up with the competition authorities. Following the Competition Commission's decision on the industry bids for Safeway, it seems that almost any move the grocery majors wish to make could now find itself the object of the Office of Fair Trading's attention, and liable to be referred to the Competition Commission. Given that the grocery industry is one of the most competitive there is, and that customers generally believe themselves well served by it, this does seem overly prescriptive. It has certainly deterred any of the private equity players which had originally been interested in making a bid for Safeway. And so it has undoubtedly lowered the price. Only by holding onto their shares in the enlarged group can they hope to share in the bargain that Sir Ken has lined up for himself and his family. January 10, 2004 Morrison wows market with dynamic Christmas Strong sales of fresh food, CDs and videos helped Wm Morrison, the supermarket group, claim market share from its rivals over Christmas with a staggering 10.2 per cent rise in underlying sales. As the news was revealed - exactly a year after Morrison first made a takeover bid for rival Safeway - the company confirmed it would post documents in the next two weeks outlining its £3 billion offer to shareholders of the UK's fourth largest supermarket. Morrison is using a Scheme of Arrangement, a fast-track bid which requires court approval, so it can take control of Safeway by mid-March. Shares in Morrison rose 2.4 per cent to 237½p as analysts said the grocer had put in a superb performance, particularly in food, where the supermarket lifted underlying sales by 9.4 per cent in the six weeks to January 4. Rival supermarkets have achieved much of their growth by increasing sales of non-food items. Bob Stott, joint managing director, said: "We believe that our Christmas performance was delivered as a result of really good availability and a strong offer right across the store." He added that the figures demonstrated that Morrison had the depth and quality of management to deliver a strong performance despite the distractions of a major takeover and Competition Commission inquiry. On average each Morrison store attracted 4.4 per cent more customers, who spent 4.8 per cent more than they did in the same period last year. The Northern supermarket chain said underlying sales had risen 10.2 per cent in the six weeks to January 4 or 9.6 per cent excluding petrol. However, Mr Stott admitted that the current growth rate was unsustainable and that the rise in underlying sales was likely to full back to mid single figures later this year once the takeover of Safeway was completed. He said the "curiosity value" about Morrisons generated by publicity about the takeover had brought lots of new customers into stores and this could not continue. Analysts agreed that Morrison's sales growth would slow but said this would be part of a general market slowdown this year. One analyst said the weather was unlikely to be so favourable again for grocers and price competition would be tougher, particularly as J Sainsbury had pledged to invest more in price cuts. Funds prefer Morrison bid to Wal-Mart By Sarah Butler >From Timesonline 18 March 2003 ATTEMPTS by Wm Morrison, the supermarket, to take control of its bigger competitor, Safeway, received a boost yesterday when Safeway shareholders said they may block a rival bid from Wal-Mart. Fund managers who hold shares in both Safeway and Tesco said that they were prepared to protect the position of the UK's biggest grocer by thwarting any attempt by Wal-Mart, which owns Asda in the UK, to expand through acquisition. The news came as Morrison underpinned its £2.3 billion takeover bid for Safeway with evidence that it remains the country's fastest-growing food retailer. Underlying sales rose 5.4 per cent in the year to February 2. The robust growth boosted Morrison's shares by a penny to 167¾p. One analyst said the company had outperformed expectations. He said: "These results show that Morrison can manage more than one thing at a time and deliver storming results while spending a lot of energy on the bid." Pre-tax profits rose 14 per cent to £276.6 million and overall sales rose 9.4 per cent to £4.3 billion. Sir Ken Morrison, executive chairman, said Morrison had continued to gain market share. He said: "We are quite pleased with ourselves at the moment. We are sticking to what we are good at." Sir Ken said that he was encouraged by strong underlying sales growth in January and February, which he attributed partly to the publicity generated by the bid for Safeway. One shareholder, who holds shares in both Tesco and Safeway, said: "Morrison getting Safeway is far more benign for anyone with Tesco shareholdings than Asda. What is going to happen if Safeway is handed over to Wal-Mart?" Some shareholders also argue that Wal-Mart would have to compensate them by offering a higher price. Investors with sizeable shareholdings in both Safeway and Tesco include Fidelity Investment Managers, Scottish Widows Investment Partners and Legal & General Investment Management. Banking sources suggested that Wal-Mart is keen to buy Safeway shares in the open market but has so far been unable to secure a large enough tranche to make such a move worthwhile. Morrison stays solid City Wire 18 September A strong half-year performance from Wm Morrison, the front runner in the battle for Safeway, proves again that the corporate chase has not distracted the supermarket chain from getting on with business. In the 27 weeks to the end of August turnover rose 14.8% to £2.5 billion with pre-tax profits up 10.9% to £126.2 million, a shade below consensus forecasts of £127 million. The cash-rich group gave its interim dividend a big 22% hike although this takes it only to 0.55p. The company cautioned that price inflation may intensify competition and the high level of consumer debt could become an issue. However overall things look good. The shares, up 2.5p to 219.5p, compared with a March low of 140p, are by no means the good value the group professes to offer in its stores, but reflect how well run the company is and the opportunity it has if it succeeds in clinching Safeway. On the bid situation, which could be resolved by Trade and Industry Secretary of State Patricia Hewitt next week, joint managing director Bob Stott was tight lipped: 'We have no expectations whatsoever given that we expected that we would be cleared in the first place.' Morrison has already said it will have to reconsider its bid if it is given clearance following the lapse of its previous £2.9 billion offer at 277.5p. Signs of poor trading at Safeway and the possibility that Morrison will be the only bidder has led to speculation that the offer price may be revised downwards. Stott told Citywire: 'It's start again time. If Morrison is cleared we'll look at costs. The chain continued its steady expansion and product improvement during the year aided by some fine weather, which boosted sales of British meat and booze. Like for like sales growth was 9%, or 8% excluding fuel sales, in the period and has risen to 9.6%, or 9.1% excluding fuel, in the first five weeks of the second half. Total sales in the first five weeks are 16.6% ahead. Morrison managed to increase the average number of customer transactions per store by 3.5% in the six months and squeeze an additional 3.3% out of the average shopper per transaction. However, gross margins were down marginally to 24.1% following an increase in staff costs. The group reported a £50.8 million increase in its cash pile to £216.5 million during the half year. Morrison investors told to expect delay before Safeway bid Times 19 September Wm Morrison, the Bradford-based supermarket chain, yesterday warned shareholders there could be a delay of several weeks before it is able to launch a bid for Safeway if it is given competition clearance next week. Sir Ken Morrison, chairman of Morrison, told the City that if his group was cleared, he expected to spend several weeks drawing up a legal agreement with the Office of Fair Trading on the sale of some of its outlets, before any bid could be made. Many analysts had believed Morrison, or any other cleared bidder, would be able to make an offer for Safeway immediately and negotiate the sell-offs at a later stage. One analyst admitted: "Its uncharted waters for us all." Another analyst told The Times: "The whole thing is a lot more complicated than we thought. It looks as though the bid will not be resolved this side of Christmas." If Morrison is cleared, it is likely to have to sell between 40 and 50 sites in order to satisfy the competition authorities. Patricia Hewitt, the Trade and Industry Secretary, is expected to publish her decision next week on whom she will allow to bid for Safeway. Depending on the rules laid down by Ms Hewitt and the Competition Commission, Morrison may have to negotiate exactly who can buy every single one of the divested stores. Morrison is widely expected to be the only chain cleared to bid for Safeway - beating J Sainsbury and Tesco. However, some analysts expect that Asda may manage to obtain clearance. Philip Green, the owner of Bhs, who has also expressed an interest in bidding, escaped referral to the competition watchdog. The warning over a possible delay to a bid came as Morrison unveiled a robust 9 per cent increase in underlying sales for the 27 weeks to August 10 and a 10.2 per cent rise in pre-tax profits to £126.2 million. Investors were impressed by the 9.6 per cent surge in underlying sales in the five weeks to September 14, indicating that Morrison's growth had continued into the next six months. However, Sir Ken said that growth was likely to drop back by a point or more as the effect of price inflation on food and potential rises in interest rates affected customers. William Morrison has finally been given the chanced to bid for Safeway. Bids from Asda, Tesco and Sainsburys have all been deemed anti-competitive. Operationally the company is doing everything right. This was illustrated by the impressive recent first half figures reporting sales up by some 15% over the period, furthermore current trading remains strong. Crucially though, we feel that the real kicker for the group is the Safeway bid.' The group will then benefit from a dramatic increase in store numbers and all the associated synergies, though this will likely take some time to come through. The shares are no longer cheap, but this is a superb company. Morrison unlikely to bid immediately Times 27 September William Morrison is unlikely to make a bid for Safeway until the middle of November, it emerged yesterday. The Bradford-based supermarket operator will begin a second round of due diligence on Safeway next week in order to assess how trading has changed since it launched its initial bid in January. Morrison was given the green light from the competition authorities to bid for Safeway after an eight-month investigation. At the same time Morrison will start talking to the Office of Fair Trading about the terms and conditions surrounding the disposal of 53 Safeway stores. Morrison is required to sell a chunk of stores as a condition of the acquisition. It is expected to take several weeks to finalise the disposal agreement, after which Morrison has 21 days to launch a formal offer. Sir Kenneth Morrison, the chairman of Wm Morrision, was unwilling to reveal his plans yesterday. Some observers argued that Sir Kenneth will want to launch a bid well before the deadline to give him sufficient time to prepare for the crucial Christmas trading period. Others argued that he is more likely to wait, on the ground that trading at Safeway may decline, allowing him to acquire the chain on the cheap. Investors are speculating that, in the absence of any real competition, Morrison will bid as low as possible, perhaps at 280p a share. Safeway shares plunged 20½p, or 7 per cent, to 276p yesterday as investors lost hope of any auction process. In its submission to the Competition Commission, Morrison argued it could gain £229 million in cost savings from merging its business with Safeway, up from the £79 million it quoted in January. Visit the company website Top of page