Proposed acquisition by Wm Morrison Supermarkets plc of Safeway plc

No. ME/1030/03

A report under section 125(4) of the Fair Trading Act 1973 on the advice of the Deputy Director General of Fair Trading, given on 13 March 2003, to the Secretary of State for Trade and Industry under section 76 of the Act

Please note that the full text of the decision can be downloaded by using the link on the right. What follows are extracts from the advice regarding the jurisdiction, parties and the conclusion.

JURISDICTION

The merger satisfies the assets test of the Act as the gross assets to be acquired were valued at £4.9bn in Safeway's last annual accounts. The European Community Merger Regulation does not apply as both Morrison and Safeway achieve more than two-thirds of their aggregate 2002 EEA turnover in one and the same Member State, ie, the United Kingdom.

THE PARTIES

Wm Morrison Supermarkets plc (Morrison) is the UK's fifth largest supermarket chain with 119 supermarkets located across Great Britain, predominantly in Yorkshire, the North East and Lancashire. All its stores are above 15,000 square feet (average 36,000 square feet) in sales area. Some 99 of Morrison's stores have petrol filling stations. Vertical integration is key to its business, eg, it operates plants for packing fresh produce and an abattoir and meat packing plant. It has two distribution centres at Wakefield and Northwich (Cheshire). In the year ended 3 February 2002 it reported pre-tax profit of £243m, on a turnover of £3.918bn and gross assets at that date of £1.781bn.

Safeway plc (Safeway) is the UK's fourth largest supermarket chain with 479 stores (with an average store size of 21,000 square feet). Around 20 per cent of its stores are located in Scotland.  121 stores are below 15,000 square feet in sales area and 184 stores have petrol stations on site. In addition, it has a 50 per cent stake in a joint venture with BP operating 55 food stores on BP's petrol station forecourts. Safeway supplies its stores from 20 regional distribution centres and operates six of these itself. In the year ended 30 March 2002, it reported pre-tax profit of £355m, on a turnover of £8.72bn and gross assets at that date of £4.9bn.

CONCLUSION

The proposed merger between Safeway and Morrison qualifies for investigation on the assets test of the FTA. The interaction of local and national competition issues in one-stop grocery retailing is complex. At the local level, the loss of competition between Morrison and Safeway in certain areas appears likely to be substantial. At a national level, however, the merger seems unlikely to raise additional competition concerns over and above the effects at local level. On balance we believe that there are reasonable grounds for believing that there is a significant prospect that this merger may be expected to result in a substantial lessening of competition. The potential adverse effects we have identified do not appear certain to be outweighed by potential consumer benefits.  Nor do we believe that undertakings in lieu of reference would be appropriate in this case because of the difficulties in identifying and addressing the local areas of concern, particularly given the potential number of these.

I therefore conclude and recommend that you should refer this merger to the Competition Commission.

Back to top