Safeway bids face obstacles
The Competition Commission has warned that it may block some of the takeover bids for the supermarket Safeway.
Safeway’s 479 stores are currently at the centre of a bidding war from its rivals Tesco, Sainsbury, Wal-Mart owned Asda and Morrison. The Commission warned today that it could block the bids from Asda, Tesco and Sainsbury, or ask the companies to sell off some of the stores to ensure that a competitive market remains for consumers.
However, the Competition Commission has suggested that the bid from the Bradford-based, Morrison, could improve competition by creating a fourth national player to compete with the other three national companies.
The Commission stated that it has not reached any conclusions on the merger yet and was still seeking evidence from interested parties on its inquiry into the proposed mergers. The Commission is expected to report to the Secretary of State for Trade and Industry, Patricia Hewitt on August 12th 2003.
Chief Executive of Tesco, Sir Terry Leahy, commented, ‘We note that no final decisions have yet been made by the Commission, who are due to report their findings to the Secretary of State on 12 August 2003. We welcome the opportunity to comment on the issues and possible remedies before the Commission reaches its conclusions about the proposed bids.’
The Commission is primarily concerned that by allowing Safeway’s to be bought by either Tesco, Asda or Sainsbury the UK supermarket sector will be reduced from four to three at a national level.
Concerns have been raised about the effect of the mergers on suppliers. Farmers had complained that consolidation in the sector would lead to too much buyer power for the supermarkets.
In 2000 the Office of Fair Trading put in place a Code of Practice to regulate the relations between large supermarkets and their suppliers. Evidence received by the Commission to date suggests that for the vast majority of suppliers, the Code of Practice has made no difference to their negotiating position with the large supermarkets. Of those who thought the Code had made a difference, more thought that it had made the position worse than thought it had made it better.
The Commission is concerned that an increase in buyer power would only make this situation worse for suppliers.
