Safeway-mania hits M&A as six bidders go head-to-head
27 January 2003
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4 March 2014
Could the Safeway bid become any more insane? The answer is probably yes, and the likelihood is that it most certainly will.
With five potential bidders at the table, and one definite offerer in the guise of WM Morrison Supermarkets, the UK market has never seen a public bid like it.
In fairness, the feeding frenzy Safeway has provoked among legal advisers is no doubt a product of the severe lack of large-scale European M&A work at the moment.
Gone are the days of Vodafone's £101bn takeover of Mannesmann. Now lawyers just have to get their teeth into a deal where the value is fluctuating between £2.5bn and £3bn.
But, as the saying goes, size isn't everything.
The Safeway deal is going to be noteworthy for a whole host of other reasons, one of which will be the strategies each of the bidders, and of course their lawyers, will be forced to employ to win the group.
While much of the focus is currently on the Office of Fair Trading (OFT), the Takeover Panel's (the panel) handling of the bid will certainly garner much attention.
No doubt there are already a swath of unanswered tactical questions being asked. Why, for example, did Tesco leave it so late to enter the race, and what will be the repercussions of this?
Why, at the time of going to press, had Morrisons still not posted its offer document, since it already kick-started the rundown to the 60-day takeover timetable on 9 January. Remember that it has only 28 days to file.
Is delay going to be the name of the game here? And if so, what will the panel have to do to protect Safeway's shareholders if this bid drags on, as it is currently promising to do?
For the panel, policing what is sure to become a game of tactical warfare will be crucial.
At this early stage of the bid, the panel has been fairly quiet, surfacing only to enforce its unofficial 'put up or shut up' rule on US private equity giant KKR.
However, the question is how decisive the panel will be on, for example, that most opaque of problems, the preconditional bid.
This method - a kind of carrot-dangling type of bid that lets the target know what's on offer without sparking the 60-day timetable - has become an increasingly common feature of the M&A market.
Philip Green used this method on Arcadia, as did Lloyds TSB with Abbey National.
And while the panel must be consulted on what conditions are included in an offer (a revision that was introduced to the rules over two years ago), it is still enormously time-consuming.
For example, how tough will the panel be about what conditions are included in an offer?
So far, only Carnival has faced the might of the panel on this issue during the long-winded bid for P&O Princess, when a clear and decisive condition on price was sought.
Also, the company was given up to a year to keep its offer open until P&O had emerged from a joint venture agreement with rival Royal Caribbean.
Whether the panel will allow such a timeframe again is worth watching. After all, it will not want to leave Safeway in a position where it is under siege, with its share price suffering, due to a pack of ravenous predators.
In fairness, with Safeway it is understandable why some of the bidders will plump for a preconditional offer, due to the competition issues.
Combining Asda/Wal-Mart, J Sainsbury or now Tesco with Safeway will push each company over the 25 per cent market share threshold, prompting a referral to the Competition Commission.
Why table an offer now, watch it lapse and, if allowed by the takeover rules, start all over again? Pre-empting this by marking competition clearance as a condition that must be met is sensible.
These delays do put Morrisons on the back foot, however. While the Yorkshire company has filed with the OFT, a merger with Safeway would give it a 16.1 per cent share of the market.
Is it delaying sparking the 60-day timetable because it could be forced to make a higher offer? Just look at the panel's ruling on Royal Bank of Scotland's (RBS) takeover of NatWest in 2000.
Under the timetable, offerers have until day 46 to change their bid. With NatWest, the then Bank of Scotland (now Halifax Bank of Scotland) was well into the timetable, but speculation was growing on whether RBS was going to issue a counter bid.
While RBS finally revealed its true colours on day 39, the panel had ruled that the company had until day 50 to make a decision.
Lawyers for Morrisons, along with KKR and indeed Green, must surely be considering this.
When Morrisons finally posts its offer document, and if KKR and Green go for a formal bid rather than a preconditional offer, possibly as a way of blowing delayed competitors out of the water with a 'take the money and run' tactic, they could be at a disadvantage.
If they increase their offer before day 46, other bidders could, based on the panel's RBS ruling, make a formal bid after this date.
The timetable that Morrisons, KKR and Green are on will then be reset to the beginning to follow the entrant's own timeline, potentially forcing these three to increase their bids again to stay in the running.
And you can be certain that, as part of the conditions, lawyers for the retailers will have made sure there are certain waivers on indicative prices in place to enable them, for example, to wriggle out of any previous offers.
Just to add insult to injury, there is always the chance, especially in a deal like this with so many parties, that the now revised sealed bids method could be used to finally decide a winner.
There are probably a million and one tactics that the companies and their lawyers involved in this furore will look at and possibly employ. For the director general of the panel Philip Remnant, it is one hell of a deal to go out on, since his two-year tenure ends in April.
Remnant has already shown that he can be tough, as evidenced by the panel's ruling against Tempus's material adverse change arguments during the WPP deal.
But it would be foolish to think that Safeway will prove to be so cut-and-dried.