Tesco joins Safeway free-for-all
Bid throws down gauntlet to UK competition regime
January 22 2003
Tesco has thrown the race for Safeway wide open by saying that it is considering a “compelling” offer for Safeway.
The UK’s biggest supermarket group is technically banned by competition rules from an acquisition which would give it, by some measures, a share of more than 35 per cent of the UK market.
However, Tesco is arguing that with Wal-Mart, owner of Asda and the world’s biggest retailer, and number two UK supermarket operator Sainsbury’s among the five other potential bidders, the rules are operating unfairly against it.
Eesco chief executive Sir Terry Leahy said: “Our success has been built on competition and championing the consumer. We have always understood that competition policy limited consolidation in our industry. The authorities are now being asked to consider a major structural change among the four national supermarket chains.
“Internationally, and in the UK, we are a consumer champion, we successfully run a diverse range of store types and we have a world class management team. We therefore believe the interests of consumers would best be met if Tesco led any restructuring.”
Tesco said it is making a submission to the Office of Fair Trading to set out its case. An Offer would be a mix of cash and shares, set at a level which will be compelling to Safeway shareholders and create value for Tesco investors.
The statement said: “If a restructuring of the market is to involve the three major players, Tesco is best placed to lead this change. Uniquely, Tesco brings together the qualities of a consumer champion, experience across a broad range of store types and a world class management team.”
It argued that customers would benefit from increased value, quality, choice and service, and would work with the regulatory authorities to ensure that the market remains competitive. Tesco said the Safeway portfolio of stores is largely complementary to its own estate, and believes that it should be able to retain around three-quarters of Safeway’s almost 500 stores while ensuring competitive local markets.
The company also said that head office job losses at Safeway would be compensated for by more jobs in stores. Safeway stores would be converted to all Tesco formats including Express, Metro, Superstore and Extra.
Leah later told journalists:”Wal-Mart is five times larger than us and they talk a lot about their global buying power. They are far and away the biggest player and they have already made a bid.”
On Sainsbury’s, he said: “They used to be 50 per cent bigger than us and they lost that because customers left them and came to us. It would be odd if they were rewarded for that by being allowed to bid when we were not.”
Sales analysis by Taylor Nelson Sofres using till roll data gives a combined Tesco/Safeway operation a 35.8 per cent market share before any store sales which might be ordered. However, Leahy described this as a narrow measure, and said Tesco’s own measure put the combined share at just under 30 per cent.
Safeway has agreed a takeover offer by the Morrisons chain, which is the only formal bid on the table. Sainsbury’s has made a formal submission of its proposed bid to the OFT, with Wal-Mart expected to do the same this week. Other potential bidders to have gone public are Bhs owner Philip Green and US buyout specialist Kohlberg Kravis Roberts.
