The Safeway saga: the City’s finest square up for the battle

Ashursts client Wm Morrison emerges as Competition Commission favourite in the race for Safeway

The Competition Commission surprised few last Wednesday (25 June) when it released a long-winded announcement setting out the state of play in the Safeway battle.
The regulator seemed to suggest that it would be very hard for any of the industry bidders other than Ashurst Morris Crisp’s client Wm Morrison to take over struggling supermarket chain Safeway.
However, the battle is far from over and looks like it will drag on through the summer.
Insiders are now predicting an August decision from a regulator that has already delayed its decision on the Carlton-Granada merger, which is particularly bad news for Slaughter and May partner Laura Carstensen, who is the main competition adviser to both Carlton and Wal-Mart, the US owner of Asda.
Ultimately, the remedies letter gave some encouragement to Wm Morrison and to the only remaining non-industry bidder Philip Green, who was cleared by the Office of Fair Trading (OFT) earlier this year, because it suggests that Sainsbury’s, Asda and Tesco will have a hard time.
Herbert Smith competition partner Jonathan Scott said: “Frankly, there were no great surprises.”
However, DLA partner Mike Pullen said of the Competition Commission’s assessment of Morrisons’ bid: “They seem to be saying that it would be better if someone other than Morrisons, like a foreign supermarket, came in to take Safeways. Their reasoning is all over the place.”
As predicted, the regulator identified local competition issues as the most important area, a benchmark that was also used by the Competition Commissioner’s key man on the deal, Sir Derek Morris, when he conducted an investigation into the supermarket industry in 2000.

Bidders and advisers in the ongoing battle for Safeway

Clifford Chance (Kathy Honeywood and Neil Harvey)
Bank: HSBC and Citigroup (advised in-house)
Clifford Chance is the company’s usual adviser.

Philip Green
Law firm: Simmons & Simmons (Peter Freeman, Mark Curtis and Stuart Evans)
Bank: West LB, advised by Shearman & Sterling (Kenneth MacRitchie)
Simmons missed out on an instruction from Wal-Mart, which used the City firm for its last UK acquisition, the takeover of Asda. Slaughter and May acted against the US giant on that deal and impressed enough to get the Wal-Mart instruction the second time around.
Philip Green was one of the last to enter the Safeway bunfight and Simmons had a helping hand from conflicts to win the instruction. Green’s law firm of choice is generally Allen & Overy, but when the entrepreneur entered the race the magic circle firm was already committed to both ABN Amro, Wm Morrison’s investment bank, and Dresdner Kleinwort Benson, Wal-Mart’s financial adviser.

Wm Morrison
Law firms: Ashurst Morris Crisp (Paul Gadd, Adrian Clark, Nigel Parr and Matt Hughes); Gordons Cranswick (John Holden and James Fawcett)
Bank: ABN Amro, advised by Allen & Overy (Mike Duncan), until the magic circle firm was replaced by Denton Wilde Sapte (Chris Fanner)
Wm Morrison did not have a City law firm until Sir Ken Morrison took a shine to Safeway. Historically, the company has had little need for legal or financial advice, and certainly not from a City heavyweight. Morrisons has primarily funded expansion with cash and the company has always relied on Bradford firm Gordons Cranswick.
However, its investment bank ABN Amro helped to arrange a panel review, at which Ashursts went head-to-head with Allen & Overy (A&O) for the new legal advisory role. A&O lost and received ABN Amro as a consolation prize.
Ashursts’ corporate team was led by Gadd and Clark, but there is no longer much left for the corporate team to handle. Competition lawyers are now in the spotlight and highly-rated partner Parr is running the show. Ashursts is also one of the few firms to have an in-house economist, preferring to use Hughes than an outside agency such as Lexicon.
A&O’s dual role (the firm accepted instructions from both ABN Amro and Dresdner Kleinwort Wasserstein (DKW)) has been one of the most contentious of the deal. Morrisons pressured ABN Amro into replacing A&O with Denton Wilde Sapte when the supermarket chain discovered that A&O was using a separate Chinese-walled team to advise DKW.
Recently, ABN Amro instigated a crackdown on the conflicts disclosure procedures of its external advisers.

Law firm: Slaughter and May (Nigel Boardman, Nulifer Von Bismarck and Laura Carstensen)
Bank: Dresdner Kleinwort Wasserstein, advised by Allen & Overy (Alan Paul)
Laura Carstensen is one of the busiest women in the City at the moment. She is running the competition campaigns on the two biggest UK mergers and must be due a long holiday come the autumn. Last year Carstensen took part in Denise Kingsmill’s investigation into why women in the professions have failed to break the glass ceiling.

Law firm: Freshfields Bruckhaus Deringer (Barry O’Brien, Diedre Trapp and Claire Wills)
Bank: Greenhill (advised in-house)
O’Brien is Freshfields’ co-head of corporate and the Tesco relationship partner at the magic circle firm. Most of the work is now being done by the firm’s co-head of competition Deirdre Trapp, one of the most respected competition lawyers in the City. Charming and savvy, Trapp will be doing her best to persuade the Competition Commission that Safeway should not be allowed to merge with Asda or Sainsbury’s – scuppering the competition is the best her client can reasonably hope for.

Law firm: Linklaters (David Barnes, Tony Morris and Michael Cutting)
Bank: UBS Warburg and Goldman Sachs, advised by Latham & Watkins (James Chesterman)
Like many competition lawyers, Cutting must have breathed a sigh of relief when the supermarket brief
went to the head of the Competition Commission Sir Derek Morris rather than his deputy Denise Kingsmill.
Kingsmill, who has since resigned, was not the lawyer’s favourite and Cutting’s last contentious merger was also in front of her. He advised Lloyds TSB on its blocked bid for Abbey National when he was called in to replace Clifford Chance after the Lloyds TSB deal was referred by the OFT to the Competition Commission.

Law firm: Herbert Smith (Anthony Macaulay)
Macaulay, the impressive veteran of Carnival’s successful campaign to take over cruise firm P&O Princess, was KKR’s preferred adviser.
Initially the KKR instruction looked set to go Lovells’ way, but The Lawyer understands that Macaulay’s connections with KKR’s primary
adviser Simpson Thacher & Bartlett sealed the deal for him.
However, the US private equity house publicly dropped its interest in Safeway at the end of February, leaving many commentators to speculate that a non-industry bidder could not provide the synergies that would make Safeway a viable target.