Sir Ken Morrison is famous for his quiet, publicity shunning manner of operation. But in his quiet way he has built up Morrisons into a hefty player in the top rank of British supermarketing.
Now, after two months of secret talks, this deal, at the age of 71, will allow him to leave an even bigger mark on the industry by taking his chain into the big league.
Morrisons' offer is likely to be passed by the Competition Commission and a marriage between the two makes a good geographical fit with Morrisons' strong northern base complementing Safeway's strength in the south-east and Scotland.
But some in the City believe Morrisons has bitten off more than it can cope with.
One analyst described the deal as bad news for Morrisons' shareholders as there were some big assumptions. One in particular is Morrisons' assertion that sales per sq ft in larger Safeway stores will reach current Morrisons levels by January 2007, creating a benefit of £100m.
The analyst said this was "an heroic assumption, as it would mean an increase in sales per sq ft of 25%".
Jonathan Pitkanen from Fitch ratings agency believes Morrisons is taking on a "huge operational gamble, but the amount of debt they will be taking on proportional to the size of the business is not huge".
Own label suppliers are viewing the deal as "quite good news" as the takeover will represent some new opportunities. But it would place further pressure on margins. "We knew someone was going to buy Safeway. We're just glad it wasn't Wal-Mart," said one.
But another leading own label supplier said the deal placed further inexorable pressure on the supply base to seek new efficiencies. A senior manager at one major manufacturer said Safeway needed a white knight but was surprised and disappointed that it was Morrisons. "They are taking on a bit of a leviathan. Morrisons is an excellent organisation and the real test is how they integrate the business, in terms of the ways they work, supply chain and systems and, most importantly, culture.
"They will need to drive more profitability out of the smaller stores and will probably eventually jettison some of these."
That's a view shared by other suppliers who believe it would be difficult to run two different fascias and own labels concurrently. He added: "It puts a ringfence around Morrisons. It was always a likely target for a retailer from abroad."
Morrisons, meanwhile, has a tough year ahead with the opening of a third regional distribution centre set to increase costs.
One analyst added: "This is a digression from everything they've said before. If the deal collapses you have to question the whole strategy. They will be forced to go elsewhere and the other options are not palatable."
{{ANALYSIS }}
Now, after two months of secret talks, this deal, at the age of 71, will allow him to leave an even bigger mark on the industry by taking his chain into the big league.
Morrisons' offer is likely to be passed by the Competition Commission and a marriage between the two makes a good geographical fit with Morrisons' strong northern base complementing Safeway's strength in the south-east and Scotland.
But some in the City believe Morrisons has bitten off more than it can cope with.
One analyst described the deal as bad news for Morrisons' shareholders as there were some big assumptions. One in particular is Morrisons' assertion that sales per sq ft in larger Safeway stores will reach current Morrisons levels by January 2007, creating a benefit of £100m.
The analyst said this was "an heroic assumption, as it would mean an increase in sales per sq ft of 25%".
Jonathan Pitkanen from Fitch ratings agency believes Morrisons is taking on a "huge operational gamble, but the amount of debt they will be taking on proportional to the size of the business is not huge".
Own label suppliers are viewing the deal as "quite good news" as the takeover will represent some new opportunities. But it would place further pressure on margins. "We knew someone was going to buy Safeway. We're just glad it wasn't Wal-Mart," said one.
But another leading own label supplier said the deal placed further inexorable pressure on the supply base to seek new efficiencies. A senior manager at one major manufacturer said Safeway needed a white knight but was surprised and disappointed that it was Morrisons. "They are taking on a bit of a leviathan. Morrisons is an excellent organisation and the real test is how they integrate the business, in terms of the ways they work, supply chain and systems and, most importantly, culture.
"They will need to drive more profitability out of the smaller stores and will probably eventually jettison some of these."
That's a view shared by other suppliers who believe it would be difficult to run two different fascias and own labels concurrently. He added: "It puts a ringfence around Morrisons. It was always a likely target for a retailer from abroad."
Morrisons, meanwhile, has a tough year ahead with the opening of a third regional distribution centre set to increase costs.
One analyst added: "This is a digression from everything they've said before. If the deal collapses you have to question the whole strategy. They will be forced to go elsewhere and the other options are not palatable."
{{ANALYSIS }}
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