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 Thursday, 9 January, 2003, 17:13 GMT
Safeway snapped up by rival
Safeway has revived its fortunes in recent years
Morrisons, a medium-sized but fast-growing British supermarket chain, is to take over UK rival Safeway, in a deal worth 2.9bn.

The combined firm, with 598 stores, a turnover of 12.6bn and a market share of 16%, aims to be able to compete with Asda, Sainsbury and Tesco, the giants of the UK supermarket sector.

Annual turnover - latest available figures
Tesco: 21.7bn
Sainsbury: 14.9bn
Safeway/Morrisons: 12.6bn
Asda: 10bn
Both Morrisons and Safeway have been relatively successful in recent years, but the supermarket sector is suffering from low margins and fears that spending growth is slowing down.

With Morrisons strong in northern England, and Safeway focused on Scotland and the South, the two firms say their operations will be complementary.


Nonetheless, some 1,200 non-store jobs will be cut, as the merged group seeks to eliminate overlaps.

"There will be some loss of head office jobs [but] overall there is a lot of job creation associated with the future," said Morrisons chairman Sir Ken Morrison.

"We will be creating... probably 3,000-4,000 [jobs] in the next 12 months."

The deal has been agreed by both firms, but still requires formal acceptance by shareholders.

Little and large

In taking over Safeway, Morrisons will be swallowing a chain almost four times its size.

Morrisons shopper
Morrisons is small, but growing quickly

But its 119 stores are almost all extremely large, while more than half of Safeway outlets are modest-sized town-centre shops.

And Morrisons has earned respect in the industry for the quality of its management, which has driven through an extremely rapid programme of expansion - chalking up some of the fastest profits growth in the sector.

Over the past couple of years, Safeway has revived its fortunes by a programme of investment in its retail network, culminating in a recent rebranding exercise.

The scheme has increased profits at the once-struggling retailer by 50% since 1999.

The urge to merge

Although neither retailer is struggling, both see a need to merge.

Morrisons is looking for a way to grow far more quickly, and can afford to fund an acquisition to achieve that goal as soon as possible.

Concerns that this may be too big a morsel to swallow have put pressure on its shares, which were down 14% at 180 pence.

Safeway, meanwhile, is still seen as vulnerable if trading conditions in the supermarket sector deteriorate.

Although it has smartened up its image since 1999, its larger rivals are better placed to weather any downturn.

In a sign of how much investors feel the deal means to Safeway, its shares ended the day up 20% at 256 pence.

  The BBC's Kevin Bocquet
"Morrisons has a reputation for carefully managed growth"
  Sir Kenneth Morrison, Morrison Executive Chairman
"Overall there will be a lot of job creation"
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