Siân Harrington tries to get inside the head of the man who is Morrisons as he approaches the critical stage of his Safeway bid
“Win, lose or draw in the Safeway saga, we have a strong company well equipped to continue to prosper in these increasingly competitive times”
This week Sir Kenneth Morrison was given a welcome reprieve from the accountants, lawyers, OFT officials and other advisors as he walked on stage at the Royal Lancaster in London to pick up The Grocer Cup for outstanding business leadership and achievement. It was an incongruous sight: the bluff northerner, who shuns publicity and is famously scornful of fancy functions and PR, basking in the glory of being voted the person who has made the biggest contribution to the industry in the past year by The Grocer’s readers.
“I don’t know what the fuss is about,” said Sir Ken, tongue-in-cheek, as he received the cup from last year’s winner, M&S’s Luc Vandevelde. But Sir Ken, one of the most respected people in the industry and regarded as ‘the governor’ by many of his contemporaries, will have to put all modesty aside over coming months as he tries to pull off the deal that would catapult his company into the big league, taking it ahead of Sainsbury and just below Asda in share of till roll by 2006. He will need to prove his mettle and answer the cynics who believe he has bitten off more than he can chew.
His key concern at the moment must be where to pitch the bid. To avoid having to mount a hostile bid, he needs to come to a figure that will be acceptable to Safeway’s shareholders. First and foremost, however, he needs to satisfy his own shareholders. Coming with a higher bid than the original 277p a share, or even a part-cash bid as called for by Safeway chairman David Webster, makes no sense now that the target company is in a worse position than it was in January.
One analyst predicts Morrisons’ shares could drop by 10p if the bid is too high. He says the bid should be lower than that of the original if shares are to be kept stable and suggests the £2.50 mark - and certainly no more than £2.70.
“There needs to be an understanding between Safeway’s shareholders, its management and Sir Ken. If it doesn’t work out, how gutsy will Ken be? Will he walk away.”
It’s a hard decision, because he must deliver growth, and according to the Competition Commission report into the Safeway bids, Morrisons has no sites with planning permission. In the report it stated its objective was to build 10 new stores a year, regardless of whether it was successful in completing the acquisition of Safeway. However, in the past joint MD Bob Stott has admitted it has had difficulty in getting planning consents in the south-east.
But Sir Ken, executive chairman of the company, is nothing if not canny. “He has not got where he has by failing to weigh up the issues. He is a shrewd businessman,” says the boss of one food retailer.
He will certainly need to use his attention to detail - epitomised by his checking sandwich packs for freshness and being spotted stacking shelves in supermarket aisles - as he weighs up the consequences of any bid.
The delay in moving ahead has only served to exacerbate Safeway’s problems. Suppliers say volumes have been hit badly. One analyst suggests Safeway’s volume sale baseline has dropped 15% since the original bid.
In addition, Morrisons will suddenly find itself up against more serious competition as a national rather than regional player. Tesco and Asda are not going to give up market share easily and it is safe to assume they have both used the protracted investigation period to prepare for the new threat. Will Sir Ken be able to find the money to invest in price? Will the synergies and asset sales be enough to balance Safeway’s trading condition and the investment needed to tempt customers in 2004? The consumer outlook for next year is looking neutral at best, plus the store divestment, currently being discussed with the OFT is not as clear as it could be, with some stores leasehold.
“Sir Ken has to think long and hard. He needs to satisfy Morrisons shareholders with a realistic bid,” according to one analyst.
Even assuming he succeeds in convincing both Morrisons’ and Safeway’s shareholders he has a viable plan for the merged business, the path before him is fraught with obstacles - not least how successfully southern customers will take to the unfamiliar Morrisons brand.
The challenge leaves Sir Ken unperturbed. “We appear to have raised the expectations of many potential new customers who eagerly await our presence,” he told his agm in May.
But there is still the City to appease. Sir Ken notoriously finds it an irksome beast, favouring conference calls when it comes to results announcements and for years stubbornly refusing to appoint non-executives. An enlarged Morrisons will find it hard to play that game.
Most importantly, though, is the issue of succession. In many people’s eyes, Sir Ken, who is 72 on Monday, is Morrisons. Who will run it when he retires? To date he has favoured internal candidates for promotion, so joint managing directors Bob Stott and Marie Melnyk are certainly in the race. But some commentators believe he will look for an outside chief executive if successful in his bid. He can expect the City to press harder for an indication over the coming months.
At least Sir Ken has suppliers on his side. Of course, they would have preferred no more consolidation at all, with 40% telling the Competition Commission a Morrisons takeover of Safeway would be detrimental or very detrimental to their business.
But with the inevitability of a bid, the majority hoped Morrisons would be the trade winner. As one international manufacturer says: “We think Sir Ken has all the right people qualities and good business sense to make it work. For sure there will be enormous challenges but he is shrewd enough to be aware of those and to have mentally planned for them already.”
Sir Ken acknowledges the role suppliers have played in Morrisons’ success. But the company’s real strength, he says, is the tried and tested formula of quality, variety, service and value for money. “It still works as well today as it ever did,” he says. He is determined to make it work for Safeway’s customers. That is, if he decides he still wants Safeway.
Quote unquote
“Our no-nonsense approach to good value has been welcomed by southern customers”
A new giant in the making
Founded in 1899 the UK’s fifth largest food retailer, with a 6% market share, is a favourite in the City thanks to 36 years of unbroken growth since it went public in 1967. Sir Ken took over the Bradford-based business in 1952 and opened the first supermarket in 1962.
Turnover is just under £4.29bn and pre-tax profit £277m (year to Feb 2003). By the end of this year Morrisons will have 119 stores and it will expand into Scotland in 2004. It has two RDCs with a third being built at Kettering.
“Win, lose or draw in the Safeway saga, we have a strong company well equipped to continue to prosper in these increasingly competitive times”
This week Sir Kenneth Morrison was given a welcome reprieve from the accountants, lawyers, OFT officials and other advisors as he walked on stage at the Royal Lancaster in London to pick up The Grocer Cup for outstanding business leadership and achievement. It was an incongruous sight: the bluff northerner, who shuns publicity and is famously scornful of fancy functions and PR, basking in the glory of being voted the person who has made the biggest contribution to the industry in the past year by The Grocer’s readers.
“I don’t know what the fuss is about,” said Sir Ken, tongue-in-cheek, as he received the cup from last year’s winner, M&S’s Luc Vandevelde. But Sir Ken, one of the most respected people in the industry and regarded as ‘the governor’ by many of his contemporaries, will have to put all modesty aside over coming months as he tries to pull off the deal that would catapult his company into the big league, taking it ahead of Sainsbury and just below Asda in share of till roll by 2006. He will need to prove his mettle and answer the cynics who believe he has bitten off more than he can chew.
His key concern at the moment must be where to pitch the bid. To avoid having to mount a hostile bid, he needs to come to a figure that will be acceptable to Safeway’s shareholders. First and foremost, however, he needs to satisfy his own shareholders. Coming with a higher bid than the original 277p a share, or even a part-cash bid as called for by Safeway chairman David Webster, makes no sense now that the target company is in a worse position than it was in January.
One analyst predicts Morrisons’ shares could drop by 10p if the bid is too high. He says the bid should be lower than that of the original if shares are to be kept stable and suggests the £2.50 mark - and certainly no more than £2.70.
“There needs to be an understanding between Safeway’s shareholders, its management and Sir Ken. If it doesn’t work out, how gutsy will Ken be? Will he walk away.”
It’s a hard decision, because he must deliver growth, and according to the Competition Commission report into the Safeway bids, Morrisons has no sites with planning permission. In the report it stated its objective was to build 10 new stores a year, regardless of whether it was successful in completing the acquisition of Safeway. However, in the past joint MD Bob Stott has admitted it has had difficulty in getting planning consents in the south-east.
But Sir Ken, executive chairman of the company, is nothing if not canny. “He has not got where he has by failing to weigh up the issues. He is a shrewd businessman,” says the boss of one food retailer.
He will certainly need to use his attention to detail - epitomised by his checking sandwich packs for freshness and being spotted stacking shelves in supermarket aisles - as he weighs up the consequences of any bid.
The delay in moving ahead has only served to exacerbate Safeway’s problems. Suppliers say volumes have been hit badly. One analyst suggests Safeway’s volume sale baseline has dropped 15% since the original bid.
In addition, Morrisons will suddenly find itself up against more serious competition as a national rather than regional player. Tesco and Asda are not going to give up market share easily and it is safe to assume they have both used the protracted investigation period to prepare for the new threat. Will Sir Ken be able to find the money to invest in price? Will the synergies and asset sales be enough to balance Safeway’s trading condition and the investment needed to tempt customers in 2004? The consumer outlook for next year is looking neutral at best, plus the store divestment, currently being discussed with the OFT is not as clear as it could be, with some stores leasehold.
“Sir Ken has to think long and hard. He needs to satisfy Morrisons shareholders with a realistic bid,” according to one analyst.
Even assuming he succeeds in convincing both Morrisons’ and Safeway’s shareholders he has a viable plan for the merged business, the path before him is fraught with obstacles - not least how successfully southern customers will take to the unfamiliar Morrisons brand.
The challenge leaves Sir Ken unperturbed. “We appear to have raised the expectations of many potential new customers who eagerly await our presence,” he told his agm in May.
But there is still the City to appease. Sir Ken notoriously finds it an irksome beast, favouring conference calls when it comes to results announcements and for years stubbornly refusing to appoint non-executives. An enlarged Morrisons will find it hard to play that game.
Most importantly, though, is the issue of succession. In many people’s eyes, Sir Ken, who is 72 on Monday, is Morrisons. Who will run it when he retires? To date he has favoured internal candidates for promotion, so joint managing directors Bob Stott and Marie Melnyk are certainly in the race. But some commentators believe he will look for an outside chief executive if successful in his bid. He can expect the City to press harder for an indication over the coming months.
At least Sir Ken has suppliers on his side. Of course, they would have preferred no more consolidation at all, with 40% telling the Competition Commission a Morrisons takeover of Safeway would be detrimental or very detrimental to their business.
But with the inevitability of a bid, the majority hoped Morrisons would be the trade winner. As one international manufacturer says: “We think Sir Ken has all the right people qualities and good business sense to make it work. For sure there will be enormous challenges but he is shrewd enough to be aware of those and to have mentally planned for them already.”
Sir Ken acknowledges the role suppliers have played in Morrisons’ success. But the company’s real strength, he says, is the tried and tested formula of quality, variety, service and value for money. “It still works as well today as it ever did,” he says. He is determined to make it work for Safeway’s customers. That is, if he decides he still wants Safeway.
Quote unquote
“Our no-nonsense approach to good value has been welcomed by southern customers”
A new giant in the making
Founded in 1899 the UK’s fifth largest food retailer, with a 6% market share, is a favourite in the City thanks to 36 years of unbroken growth since it went public in 1967. Sir Ken took over the Bradford-based business in 1952 and opened the first supermarket in 1962.
Turnover is just under £4.29bn and pre-tax profit £277m (year to Feb 2003). By the end of this year Morrisons will have 119 stores and it will expand into Scotland in 2004. It has two RDCs with a third being built at Kettering.
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