Safeway rides out merger limbo

Safeway has been forced to carry on with its normal business practice against a background of fevered merger talks, and upsetting suppliers and customers who are concerned about the future ownership of the company. As a result, profits for the second half of the year have been hit, although a profit figure of £335m before tax for the whole year will still come in within the range of market forecasts.

In January, rival supermarket Morrisons made an offer in shares for the company valued at £2.9bn at the time. This was initially accepted by Safeway before a host of players in the market also registered an interest, with some very large figures being thrown about.

Despite the initial flurry of attention from companies such as Asda, Tesco and Sainsbury’s, followed by Safeway’s subsequent recommendation to shareholders to reject Morrisons’ current offer, little has happened.

Morrisons’ bid remains the only one on the table and it is likely to stay that way until a decision has been made by the Competition Commission as to whether this, or any other bids from supermarkets, would break monopoly regulations.

With no result expected from the Competition Commission until around September, Safeway has undertaken a significant cost-cutting exercise to reduce the impact of hanging in merger limbo. These include changes to promotional investment, a slowdown of store reformatting and the implementation of tighter cost controls.

Laffin no doubt hopes that once the Competition Commission has made its decision, things will start to move fast. Providing the interested parties get the go-ahead, it could be one of the last major deals pushed through as a merger in this country.

The International Accounting Standards Board’s latest proposals look set to put pay to such accounting procedures, forcing one company to become the acquirer, whether it likes it or not. Any further delays, to the point where the new standards on business combinations are implemented, and any deals, will likely have to face a restructuring. Suitors could even be put off bidding.

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