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supermarket sweep: morrisons allowed to go wild in the aisles at safeway

Background

Last March the Secretary of State for Trade and Industry made four references to the Competition Commission under the UK merger control provisions regarding the proposed acquisition of Safeway plc by Asda, Sainsbury's, WM Morrison or Tesco.

All four bidders were eager to acquire Safeway owing to intense competition for sites and strict planning regulations which prevent them from opening new supermarkets and from carrying out store extensions.

Merger report

After a six-month long inquiry, the Competition Commission found that the acquisition of Safeway by Asda, Sainsbury's or Tesco would operate against the public interest at both a local and national level and would result in an increase in prices over the long term stemming from a cut in the number of major stores from three to four. Since no reasonable package of divestments would remedy the competition concerns, the proposed acquisition by Asda, Sainsbury's or Tesco was prohibited. However, the Competition Commission approved the proposed acquisition by Wm Morrison so long as 53 stores of the 479-strong Safeway chain are divested.

Trade and Industry Secretary Patricia Hewitt accepted the conclusions of the Competition Commission and has asked the Office of Fair Trading (OFT) to regulate the divestment process after commissioning an independent valuation of the shops. Also, as recommended by the Competition Commission, she asked the OFT to negotiate undertakings with Asda, Sainsbury's and Tesco in relation to the Safeway stores that are to be divested so as to remedy adverse competitive effects. With Tesco, Sainsbury's and Asda keen to take on as many divested stores as they are allowed, the jostle for the 53 stores promises to be as fierce as the bid for Safeway itself with other retailers including Marks & Spencer and Waitrose interested in strengthening their own chains.

key expertise

Geraldine Tickle
Partner
geraldine.tickle@martjohn.com

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