Safeway investors should expect cash bids of no more than 280p a share if, as expected, the major trade buyers are referred and the tussle ends up between the leverage bidders and Morrisons.
CAI Cheuvreux food analyst Mike Dennis said Morrisons could add cash if Philip Green, through his Trackdean venture, or KKR made an offer. But all three would need to keep the offer low to make a sound business case. "Why pay more for Safeway?"he asked. "There is limited goodwill, few family shoppers and no loyalty."
Since January Morrisons shares have lost 22%, valuing its all-share offer at 218p compared to the entry price of 250p. It could bump this up to the 280p level with cash but needed to consider the execution risks, warned Dennis. As the timetable extends, Safeway's value would diminish and Morrisons would need to consider the cost of attracting customers back to the stores, its lack of premium own label, and the cost of migrating IT systems among other things.
Dennis said KKR lacked management, synergy capture and UK strategy credibility while Green would need to divest 150 plus stores, thereby reducing buying power. Plus there are limited cash returns for non-trade bidders due to the highly competitive UK market. "Green's risk is significantly higher if he goes above 300p," said Dennis. His conclusion was to expect Morrisons to win.
Based on his experience as boss of Somerfield when it merged with Kwik Save, Littlewoods chairman David Simons warned whoever acquired Safeway would see a reduction of shareholder value and these investors would be the "most likely losers" .
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CAI Cheuvreux food analyst Mike Dennis said Morrisons could add cash if Philip Green, through his Trackdean venture, or KKR made an offer. But all three would need to keep the offer low to make a sound business case. "Why pay more for Safeway?"he asked. "There is limited goodwill, few family shoppers and no loyalty."
Since January Morrisons shares have lost 22%, valuing its all-share offer at 218p compared to the entry price of 250p. It could bump this up to the 280p level with cash but needed to consider the execution risks, warned Dennis. As the timetable extends, Safeway's value would diminish and Morrisons would need to consider the cost of attracting customers back to the stores, its lack of premium own label, and the cost of migrating IT systems among other things.
Dennis said KKR lacked management, synergy capture and UK strategy credibility while Green would need to divest 150 plus stores, thereby reducing buying power. Plus there are limited cash returns for non-trade bidders due to the highly competitive UK market. "Green's risk is significantly higher if he goes above 300p," said Dennis. His conclusion was to expect Morrisons to win.
Based on his experience as boss of Somerfield when it merged with Kwik Save, Littlewoods chairman David Simons warned whoever acquired Safeway would see a reduction of shareholder value and these investors would be the "most likely losers" .
{{NEWS }}
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