Supermarket mega merger: What does it mean for Morrisons?

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Does Sainsbury’s and Asda’s proposed tie up fire the starting gun on merger mania in the supermarket sector?

That’s certainly what some commentators think. But in reality it’s already with us.

Two of the big players, Tesco and Co-op, both have deals of their own that they’re at different stages of integrating. They’re just with wholesales, respectively Booker and Nisa

They’re almost guaranteed to cry foul about this latest transaction when the Competition & Markets Authority starts its inevitable investigation.

Why make it easy on their competitors?

But it’s worth bearing in mind that the tie up between Sainsbury’s and Asda is essentially defensive.

It’s actually a function of the two parties’ weaknesses as much as their strength in the face of the rapid changes the market is undergoing, changes that have seen both losing market share (although Asda has stemmed the bleeding to a certain extent).

The deal poses less of a question for Waitrose, and Co-op, both of which are well established in their respective niches (respectively an upscale clientele and the convenience sector), than it does for Morrisons, the number four chain which could soon find itself sandwiched between the two giants.

Some have suggested that boss David Potts, who has overseen one of the more remarkable rivals the sector has seen in recent years, now has to find a deal to get within spitting distance of the big two.

Co-op’s name has even been suggested, an idea that drew some mirth at its HQ. Co-op is, after all, a co-operative. Why on earth would its members surrender the benefits of its hard won return to health to a plc?

In reality, Mr Potts has no need to panic. It will be some time before the giant can roar, if it ever does.

It is true that the stock market loves the deal. Sainsbury’s shares looked like one of Elon Musk’s rockets when trading opened, shooting up by nearly 20 per cent.

But remember that the great innovation of Elon’s SpaceX is a rocket that can return to earth. That could easily happen to Sainsbury’s after the dust settles.

Co-op members, through their experience with the acquisition of Somerfield, and Morrisons shareholders, with its takeover of Safeway, can both testify that supermarket mergers in Britain do not have a happy history.

Those organisations spent years dealing with the fall out from deals that turned disastrous, deals that were a lot smaller and less complex than this one.

As such, the market’s fleet footed number four, and its niche players alike, could use the opportunity to pick up quality staff looking to jump before they’re pushed, and market share, while exploring the opportunities that may open up through their rivals’ distraction. They could maybe also grab some new sites on the cheap if regulators force the merger partners to dispose of some of their outlets.

Morrison’s doesn’t have to scurry off to, say, its partner Amazon crying “help!”. At least not yet.

If it wants to entertain us all, however, how about going all in and tabling a counter-bid for Sainsbury’s? Go ahead David Potts. Make our day!

 

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