Morrison(Wm.)Supermarkets PLC
15 December 2003
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN, INTO OR FROM THE UNITED STATES,
AUSTRALIA, CANADA OR JAPAN
15 December 2003
WM MORRISON SUPERMARKETS PLC ('MORRISONS')
AND SAFEWAY PLC ('SAFEWAY')
NEW RECOMMENDED OFFER BY MORRISONS FOR SAFEWAY
Offer highlights
• The boards of Morrisons and Safeway have reached agreement on the terms of
a new £3 billion recommended offer for Safeway.
• The Offer values each Safeway Share at 283 pence, comprising 1 new
Morrisons Share plus 60 pence in cash (calculated based on the closing
mid-market price of a Morrisons Share of 223 pence on 12 December 2003).
• The Offer represents a premium of 33 per cent. over the closing mid-market
price of a Safeway Share of 213 pence on 8 January 2003, the day prior to
Morrisons Original Offer announcement.
• Assuming full acceptance of the Offer, existing Morrisons Shareholders
will own approximately 60 per cent. and existing Safeway Shareholders will
own approximately 40 per cent. of the Enlarged Group.
• The Offer will include a mix and match facility, which will allow Safeway
Shareholders to elect to receive additional new Morrisons Shares to the
extent that other shareholders elect to receive more cash.
• The merger of the two companies is expected to generate powerful
synergies, comprising operating cost savings and trading benefits of no less
than £215 million per annum in the financial year to January 2008, achieved
at a total estimated revenue cost of £165 million.*
• The impact of the transaction on earnings per share (excluding
restructuring costs) is expected to be broadly neutral in the year ending
January 2005 and enhancing for earnings per share (excluding restructuring
costs) thereafter despite the application of Morrisons depreciation rates
and practices. Based on the projected synergies, the Enlarged Group is
expected to achieve its cost of capital by the year ending January 2008.
Strong cash generation is an important feature of the Enlarged Group.**
Creating a major new force in UK food retailing
• Morrisons continues to believe in the strong commercial rationale behind
the Merger with Safeway. Combining Morrisons brand strength with Safeway's
national portfolio and infrastructure provides a unique opportunity to
create a strong fourth national competitor in UK food retailing, with:
- current combined sales of c.£13 billion;
- 552 stores with an aggregate selling area of approximately 13 million
square feet, after the 52 store disposals agreed with the regulatory
authorities; and
- complementary geographic coverage with strong national and regional
positions of the combined store portfolio.
• Morrisons strong trading performance recorded over the first half of the
current financial year has continued into the second half, with
like-for-like sales up 9.6 per cent. for the seventeen weeks ended 7
December 2003.
• Morrisons format and prices will be extended into the larger Safeway
stores to provide Safeway customers with the benefits of the Morrisons offer
and to improve their operating performance.
Commenting on the Merger, Sir Kenneth Morrison, Executive Chairman of Morrisons,
said:
'The logic of combining Morrisons with Safeway is every bit as powerful today as
it was a year ago. This merger will be a transforming step for Morrisons,
enabling us to take the distinct Morrisons formula and our passion and flair for
food retailing to customers everywhere in the UK.
Over the past 11 months we have both grown Morrisons existing business and gone
through a complex regulatory process. I am confident that the team will be able
to integrate Safeway swiftly and effectively.
The creation of a strong, vibrant and highly competitive fourth force will, we
believe, be a defining event for the UK grocery industry. Its benefits will be
felt week in, week out, by customers at the checkout.'
David Webster, Chairman of Safeway said:
'In January we chose to merge with Morrisons because we believed it was the only
deal that was both in the interests of shareholders and likely to win regulatory
approval. I am delighted we have now secured the merger that has always been our
preferred outcome.
Our shareholders will benefit from the synergies from combining the two
businesses and key Safeway people will help ensure successful integration.
The Board is grateful for the patience and commitment of Safeway colleagues
throughout the period of prolonged uncertainty and we are confident a great
future lies ahead for Safeway as part of a strengthened Morrisons.'
Enquiries:
Morrisons On day of announcement: c/o Citigate Dewe Rogerson
Sir Kenneth Morrison Tel: +44 (0)20 7638 9571
Robert Stott
Martin Ackroyd Thereafter: Morrisons Press Office (Gillian Hall)
Tel: +44 (0)1924 875 308
ABN AMRO
Nigel Turner Tel: +44 (0)20 7678 7788
Jitesh Gadhia Tel: +44 (0)20 7678 7678
Hoare Govett
Nigel Mills Tel: +44 (0)20 7678 1830
Citigate Dewe Rogerson Tel: +44 (0)20 7638 9571
Jonathan Clare
Simon Rigby
Safeway Tel: +44 (0)20 7493 1040
David Webster
Simon Laffin
Steve Webb
HSBC Tel: +44(0) 20 7991 8888
Rupert Faure Walker
Aidan Wallis
Citigroup Tel: +44 (0)20 7986 4000
Robert Swannell
David Wormsley
Ian Hart
Brunswick Group Limited Tel: +44 (0)20 7404 5959
Susan Gilchrist
Timothy Grey
This summary should be read in conjunction with the full text of the attached
announcement.
A presentation to analysts regarding the Merger will be held today at 9:30 a.m.
at the offices of ABN AMRO, 250 Bishopsgate, London EC2M 4AA.
* The expected operating cost savings have been calculated on the basis of the
existing cost and operating structures of the companies and by reference to
current prices and exchange rates and the current regulatory environment. These
statements of estimated cost savings and one-off costs for achieving them relate
to future actions and circumstances which, by their nature, involve risks,
uncertainties and other factors. Because of this, the cost savings referred to
may not be achieved, or those achieved could be materially different from those
estimated. This statement should not be interpreted to mean that the earnings
per share in the financial year following the Merger, or in any subsequent
period, would necessarily match or be greater than those for the relevant
preceding financial period.
** The statements that the impact of the transaction on earnings per share
(excluding restructuring costs) is expected to be broadly neutral in the year
ending January 2005 and enhancing for earnings per share (excluding
restructuring costs) thereafter, and based on the expected synergies the
Enlarged Group is expected to achieve its cost of capital by the year ending
January 2008, do not constitute a profit forecast and should not be interpreted
to mean that earnings per share in the financial year commencing 2 February
2004, or in any subsequent period, will necessarily match or be greater than
those for the relevant preceding financial period.
ABN AMRO is acting for Morrisons and no one else in connection with the Offer
and will not be responsible to anyone other than Morrisons for providing the
protections afforded to clients of ABN AMRO or for providing advice in relation
to the Offer.
Hoare Govett is acting as broker for Morrisons and is not acting for anyone else
in connection with the Offer and will not be responsible to anyone other than
Morrisons for providing the protections afforded to clients of Hoare Govett or
for providing advice in relation to the Offer.
HSBC, which is regulated in the United Kingdom for the conduct of investment
business by The Financial Services Authority, is acting for Safeway and no one
else in connection with the Offer and will not be responsible to anyone other
than Safeway for providing the protections afforded to customers of HSBC nor for
providing advice in relation to the Offer.
Citigroup Global Markets Limited is acting for Safeway and no one else in
connection with the Offer and will not be responsible to anyone other than
Safeway for providing the protections afforded to clients of Citigroup Global
Markets Limited or for providing advice in relation to the Offer.
This announcement does not constitute an offer to sell or invitation to purchase
any securities or the solicitation of any vote or approval in any jurisdiction.
The release, publication or distribution of this announcement in certain
jurisdictions may be restricted by law and therefore persons in such
jurisdictions into which this announcement is released, published or distributed
should inform themselves about and observe such restrictions.
The Offer will not be made, directly or indirectly, in or into, or by the use of
mails or any means or instrumentality (including, without limitation,
telephonically or electronically) of interstate or foreign commerce of, or any
facility of a national, state or other securities exchange of, the United
States, Canada, Australia or Japan. Accordingly, copies of this announcement and
formal documentation relating to the Offer are not being, and must not be,
directly or indirectly, mailed or otherwise forwarded, distributed or sent in or
into or from the United States, Canada, Australia or Japan and the Offer will
not be capable of acceptance by any such use, instrumentality or facility within
the United States, Canada, Australia and Japan and persons receiving this
announcement (including custodians, nominees and trustees) must not mail or
otherwise forward, distribute or send it in or into or from the United States,
Canada, Australia or Japan. Doing so may render invalid any purported acceptance
of the Offer. The availability of the Offer to persons who are not resident in
the United Kingdom may be affected by the laws of the relevant jurisdictions.
Persons who are not resident in the United Kingdom should inform themselves
about and observe any applicable requirements.
The new Morrisons Shares have not been, nor will they be, registered under the
US Securities Act or under the securities laws of any state, district or other
jurisdiction of the United States; the relevant clearances have not been, nor
will they be, obtained from the securities commission of any province or
territory of Canada; no prospectus has been lodged with, or registered by, the
Australian Securities and Investments Commission or the Japanese Ministry of
Finance; and the new Morrisons Shares have not been, nor will they be,
registered under or offered in compliance with applicable securities laws of any
state, province, territory or jurisdiction of Canada, Australia or Japan.
Accordingly, the new Morrisons Shares may not (unless an exemption under
relevant securities laws is applicable) be offered, sold, resold or delivered,
directly or indirectly, in or into the United States, Canada, Australia or Japan
or any other jurisdiction if to do so would constitute a violation of the
relevant laws of, or require registration thereof in, such jurisdiction or to,
or for the account or benefit of, any US, Canadian, Australian or Japanese
person.
Appendix II contains the definitions of certain terms used in this announcement.
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN, INTO OR FROM THE UNITED STATES,
AUSTRALIA, CANADA OR JAPAN
15 December 2003
WM MORRISON SUPERMARKETS PLC ('MORRISONS')
AND SAFEWAY PLC ('SAFEWAY')
NEW RECOMMENDED OFFER BY MORRISONS FOR SAFEWAY
1. Introduction
The boards of Morrisons and Safeway announce that they have unanimously agreed
the terms of a proposed merger to create a dynamic national supermarket group
well-positioned to compete successfully in the UK market place.
Under the terms of the Offer, Morrisons Shareholders will retain their shares in
Morrisons and Safeway Shareholders will receive:
for each Safeway Share 1 new Morrisons Share plus 60 pence in cash
The Offer values the issued share capital of Safeway at approximately £3 billion
and each Safeway share at 283 pence, representing a premium of 33 per cent. over
the closing mid-market price of a Safeway Share of 213 pence on 8 January 2003,
the day before Morrisons Original Offer announcement. Assuming full acceptance
of the Offer, existing Morrisons Shareholders will hold approximately 60 per
cent. and existing Safeway Shareholders will hold approximately 40 per cent. of
the issued ordinary share capital of the Enlarged Group.
The Offer will enable Safeway Shareholders to:
- receive a cash component of 60 pence per share which in aggregate would be
worth £636 million and equates approximately to the expected cash proceeds
from the divestment of the 52 stores required to be divested by the
regulatory authorities representing 13 per cent. by sales area of Safeway's
store portfolio; and
- benefit from the clear new direction and trading strategy that Morrisons
would provide whilst retaining a share of 40 per cent. in the Enlarged
Group, which Morrisons believes fairly reflects the relative contribution
of Safeway's ongoing business to the Enlarged Group after taking into
account the divestment of 52 stores.
The requirement to sell 52 stores has an estimated associated loss of net sales
of approximately £1 billion and an associated loss of contribution at the store
level, which Morrisons estimates to have an incremental impact, when compared to
its expectations in January, of approximately £80 million.
2. Rationale for the Offer
Morrisons success is based on:
- high quality products at consistently low prices;
- a strong offer across all fresh foods, including its Market Street
format; and
- a strong national promotional programme
all of which add up to great value for customers, week in, week out.
Morrisons continues to see significant growth prospects for its format on a
stand-alone basis. The opportunity to combine its operations with Safeway would,
in the view of the Morrisons board, create a strong and competitive alternative
to the other national grocery retail chains, building on the opportunity
presented in particular by Safeway's portfolio of larger stores.
The Enlarged Group will provide a strong and dynamic alternative to the other
national grocery retail chains and will enjoy:
- a strong national position for the combined store portfolio;
- a clear new direction for the underperforming parts of the Safeway
business;
- a strong infrastructure, particularly in supply chain management,
warehousing, distribution and central support; and
- powerful synergies, comprising significant cost savings from
increased scale and trading benefits as a result of the introduction
of the full Morrisons offer into the larger Safeway stores on a
consistent national pricing policy.
Strong national position
On completion of the Merger, the Enlarged Group will operate 552 stores (after
divestment of 52 stores) with an aggregate selling area of approximately 13
million square feet on a comparable basis, as explained below. It will have
sales of approximately £13 billion. The locations of the Morrisons and Safeway
stores are highly complementary with Morrisons geographic strengths in the
Midlands and the North of England added to Safeway's strong positions in
Scotland and Southern England.
Three store categories
The Competition Commission's enquiry highlighted the differences in the
methodology for calculating sales area between the major supermarket groups.
Morrisons recognises areas where goods are displayed for sale, that is from back
of store counters to the checkouts. In contrast, Safeway includes circulation
areas behind the checkouts, that is it measures from back of store to the front
wall. Morrisons estimates that the application of its approach to measuring
productive sales area would reduce Safeway's reported sales area by
approximately 10 per cent. Morrisons has therefore re-classified the sales area
of the Safeway store portfolio, and taking account of the disposal of 52 stores,
the portfolio is now categorised as follows:
- 118 large stores with sales areas above 25,000 square feet,
representing 43 per cent. of Safeway's adjusted total sales area;
- 171 stores with sales areas between 15,000 and 25,000 square feet,
representing 41 per cent. of Safeway's adjusted total sales area;
and
- 138 small stores with sales areas below 15,000 square feet,
representing 16 per cent. of Safeway's adjusted total sales area.
The Enlarged Group will concentrate on the application of the strong Morrisons
brand and retail format across the two larger categories of store, reflecting
Morrisons experience of operating larger stores at higher sales densities,
whilst maintaining Safeway's expertise in running smaller stores, including
those in high street locations.
Safeway's large stores, with sales areas of over 25,000 square feet, will be
converted to the full Morrisons superstore format. These will carry the full
Morrisons range of products under Morrisons consistent national pricing and
promotional policy. Once converted, these large stores are expected to reach
Morrisons current sales densities, some 21 per cent. above Safeway's sales
densities in this category, within 18 months of conversion, as existing
customers increase average spend and customers are drawn to carry out their
weekly shopping at the converted Safeway stores.
Safeway stores with sales areas of between 15,000 and 25,000 square feet will
also be converted to the Morrisons national pricing policy and promotional
programme, but will have a tailored product range appropriate to their size and
locality, with an emphasis on a strong grocery, fresh food and wines and spirits
offer. In order to differentiate, these stores will carry a Morrisons sub-brand.
Morrisons expects that sales in this category of store should increase by over
10 per cent. by the year ending January 2008. Additionally Morrisons will seek
planning permission to extend a number of the stores over time to the 25,000
square feet and above category.
Morrisons strategy for the successful small stores will reflect their size, the
reduced scale of their offering, their geographic location and the importance of
convenience. Whilst this group of stores will retain a convenience store pricing
structure, Morrisons will retain the Safeway brand and focus on at least
maintaining sales densities through improved availability and a regular
promotional programme.
Strong infrastructure
Morrisons currently operates two regional distribution centres and is currently
planning a third in Kettering at a cost of approximately £70 million, which is
expected to be available by early 2005. The Enlarged Group will have a network
of 7 RDCs increasing to 8 as the new Morrisons RDC comes on line. Each RDC will
service on average around 70 stores of all sizes, and RDCs will be supported by
specialist distribution depots. Safeway RDCs will be converted and extended,
where appropriate, to handle the Morrisons offer along with the greater volumes
which are anticipated. The first RDC conversion is likely to be completed around
three months after completion of the Merger and the whole process is likely to
take up to 18 months. Re-launch of individual stores under the Morrisons brand,
with the Morrisons range as appropriate, will follow the pace of RDC conversions
and is expected to start in the middle of 2004 and to be completed by the end of
2006.
Morrisons will continue to combine a strong degree of vertical integration along
with third party sourcing and will look to build its production and packing
facilities into the combined supply and distribution base of the Enlarged Group.
This will entail extending the present, or building a second fresh food factory,
and adding up to four additional packhouses and two additional abattoirs.
The Enlarged Group's Head Office will be located in Bradford, where a new
building will be sited. Safeway's current Head Office in Hayes will remain until
the new offices in Bradford are completed in 2005, but certain functions (such
as the buying operation), may be brought together earlier in temporary premises.
A headcount reduction of some 1,200 non-store personnel is anticipated.
Powerful synergies*
A total of £150 million of cost savings has been identified as a result of the
proposed Merger of which it is expected that half will be achieved by January
2005:
• £70 million from combining two sets of buying prices together with the
additional volume, which in total is equivalent to c.0.8 per cent. of the
combined historic cost of sales (excluding petrol); and
• approximately £80 million from combining the Head Offices and central
functions of the two groups.
Additionally, trading benefits of £65 million are expected to be generated, made
up of three components - store profits, reduction in leafleting spend and the
benefits of vertical integration.
• Store profits: in the Original Offer there was estimated to be a £50
million fall in store profits in the third full year as the benefit of
volume gains was less than necessary price reinvestment and volume related
costs. Morrisons now believes that this figure will amount to £75 million in
the year ending January 2008, reflecting the additional price investment
required to stabilise the Safeway business, and also the impact of
reclassification of Safeway sales areas. By their nature, volume gains come
through over a period following the initial price reduction. This means that
the impact on store profits is more significant in the early years, with the
low point expected in the year to January 2006 and strong improvement
thereafter as the conversion programme completes.
• Leafleting expenditure: Morrisons continues to see a reduction in
leafleting expenditure of £75 million, which is expected to come through
very quickly.
• Vertical integration: the expected benefits of £65 million will begin to
come through in 2004 and build up in line with the store conversion
programme and investment in infrastructure.
Consequently, the pre-tax impact of the improved trading performance and
identified cost savings on the Enlarged Group is expected to amount to no less
than £215 million per annum to be achieved in full in the financial year ending
January 2008. Around £25 million of these synergies are expected to come through
in the year ending January 2005.
The revenue cost of achieving these benefits is expected to amount to £165
million, spread broadly equally over three years; £60 million of this is
rebranding as explained below and the balance is restructuring costs.
Investment
Over the next three financial years, the Enlarged Group intends to invest around
£525 million per annum in store conversions, new stores and infrastructure.
The first step in the roll-out of the Morrisons format will entail in-store
theatre, point of sale and staff uniforms and facilities at an aggregate revenue
cost of £20 million per annum for the first three years. The second stage
involves capital expenditure to cover building works and store extensions where
practical and desirable. Morrisons has set aside £260 million over the next
three years for this purpose. The initial relaunch (and second stage where
applicable) will be supported by extensive local marketing under the umbrella of
the regional and national Morrisons advertising support which mainly comprises
press and TV and radio advertising.
At the same time, Morrisons will continue to develop new stores and is planning
to spend some £300 million each year on around 10 new store openings annually.
On infrastructure, the Enlarged Group is committing £420 million over the next
three financial years to cover the new Morrisons RDC, new packhouses, a fresh
food factory, two abattoirs and the new Head Office.
Financial capacity to develop the businesses
The Enlarged Group will have the financial capacity to develop the business. In
conjunction with the Offer, Morrisons has secured new committed bank facilities
totalling £1.75 billion, arranged and fully underwritten by ABN AMRO Bank N.V..
This will provide the Enlarged Group with the resources necessary to fund the
cash component of the Offer, to refinance Safeway's existing bank debt, to meet
all anticipated restructuring costs and allow for continuing financial
flexibility.
3. Background to and reasons for the recommendation of the board of Safeway
The board of Safeway believes that there are substantial benefits, including
significant synergies, from combining Safeway and Morrisons. As Safeway
indicated in January, the board believes that a merger with Morrisons offers the
best means of accelerating growth and delivering greater value for our
shareholders and customers. The board also believes that the combination will be
the best way to ensure a secure future for the overwhelming majority of
Safeway's employees and indeed its other stakeholders. The terms of the Offer,
which is today worth 283 pence per Safeway share, will provide Safeway
shareholders, who will own 40 per cent. of the enlarged group, with a
significant share of these benefits. Morrisons has introduced a 60 pence cash
element which reflects the expected proceeds from the disposal of the 52 stores
referred to below. Shareholders will also have the opportunity to elect for more
cash or shares under the mix and match facility.
On 9 January 2003, Morrisons and Safeway announced a recommended all share offer
for Safeway which valued each Safeway share at 277.5 pence. Following this
announcement, Sainsbury, ASDA, Tesco, KKR and Philip Green all expressed
interest in making an offer for Safeway. The Original Offer lapsed when it was
referred to the Competition Commission on 19 March 2003. The potential offers by
Sainsbury, ASDA and Tesco were also referred to the Competition Commission and
the subsequent enquiry resulted in each of those parties being prevented from
acquiring Safeway. Morrisons was allowed to proceed, but only on the basis that
it undertook to sell stores in 52 overlap locations in order to remedy local
competition issues. It has taken 11 months for this regulatory situation to be
clarified, during which time Safeway's employees and suppliers have faced
intense pressure and uncertainty.
During this time the board of Safeway has continued to consider a range of
options for creating additional shareholder value. These have included different
trading strategies, the sale or swap of a substantial part of Safeway's store
portfolio and a return of capital funded by either a conventional or a
property-based refinancing. Discussions have also been held with a number of
parties, including private equity houses, in relation to an offer for the
company. The prospects for generating shareholder value from these alternatives
have been severely restricted by the uncertain and slow-moving regulatory
environment which now exists in the highly competitive food retail industry, and
in particular as a result of the undertakings required of Sainsbury, ASDA and
Tesco.
In reaching its decision to recommend the Offer, the board has carefully
assessed these options, taking into account value, timescale and deliverability.
Following the Secretary of State's decision on 26 September 2003 to accept the
Competition Commission's recommendations in their report, this assessment has
included discussions with the Office of Fair Trading in relation to the likely
acceptability of and process for considering store disposals. The board has
taken detailed legal opinion on the likelihood of OFT approval, and timescales
involved, for any major store divestments.
The board believes that the other options described above are unlikely to
deliver greater value to shareholders over either the short or the medium term.
Recommendation
The board of Safeway, which has been so advised by HSBC and Citigroup,
considers, for the reasons given above, the terms of the Offer to be fair and
reasonable. In providing advice to the board of Safeway, HSBC and Citigroup have
taken into account the commercial assessment of the Offer by the directors of
Safeway. Accordingly, the board of Safeway unanimously intends to recommend that
Safeway Shareholders accept the Offer.
4. Management and employees
Sir Kenneth Morrison will remain Executive Chairman of the Enlarged Group and
Morrisons other executive directors will continue to be responsible for their
respective functions in the Enlarged Group. Lawrence Christensen and Jack
Sinclair, who are currently directors of Safeway, have been invited to join the
Morrisons Board on completion of the Merger.
Morrisons also intends to appoint two non-executive directors as soon as
practicable following completion of the Merger and it is expected that these
appointments will be announced by the time of Morrisons next annual general
meeting in May 2004.
It is intended that the directors of Safeway will stand down from the board of
Safeway once the Merger becomes effective.
Following completion of the Merger, the existing employment rights, including
pension rights, of employees of Morrisons and Safeway will be fully safeguarded.
5. Information on Morrisons
Morrisons is the UK's fifth largest food retailer by market share, operating 125
superstores predominantly in the northern half of England, with 110 of these
stores incorporating petrol stations. Morrisons also has a number of subsidiary
businesses involved in produce packing, polythene bag manufacturing, meat
processing and fresh food manufacturing. For the year to 2 February 2003, the
average store size was 35,600 square feet and the average weekly number of
employees was 46,778 (31,961 FTE).
Summary financial information on Morrisons extracted, without material
adjustment, from Morrisons results for the 3 financial years ended February, is
set out below:
2 February 2003 3 February 2002 4 February 2001
(53 weeks)
£m £m £m
Turnover 4,289 3,918 3,500
EBITDA before exceptional items
(net property gains) 374 328 294
Profit before tax and
exceptional items
(net property gains) 275 243 214
Net assets 1,253 1,114 993
Basic earnings per share 11.53p 10.02p 9.31p
The market capitalisation of Morrisons based on the closing mid-market price of
a Morrisons Share on 12 December 2003 (being 223 pence) is £3,510 million.
The Morrisons store portfolio as at 10 August 2003 comprised:
Store size (sq. ft)
Above 25,000 15,000 - 25,000
No. of stores 102 7
Total sales area ('000 sq. ft.) 3,802 143
% of total sales area 96% 4%
Sales per sq. ft. (per week) £19.72 £13.87
No. of transactions ('000 per store per week) 29.7 22.8
Average basket size £24.71 £12.46
(Sales per sq. ft. and average basket size exclude petrol. Excludes 16 stores
open for less than a full financial year with a total sales area of 545,000 sq.
ft.)
6. Information on Safeway
Safeway is the UK's fourth largest food retailer by market share, with 479
stores. Safeway also runs 194 petrol stations and has a joint venture with BP,
which operates 59 petrol stations with convenience stores attached. For the year
to 29 March 2003, the average store size was 21,800 square feet (as measured by
Safeway), and the average monthly number of employees was 89,745 (57,417 FTE).
Summary financial information on Safeway extracted, without material adjustment,
from Safeway's results for the 3 financial years ended March is set out below:
29 March 2003 30 March 2002 31 March 2001
(restated)
£m £m £m
Turnover 8,807 8,717 8,296
EBITDA before exceptional items 601 618 581
Profit before tax 270 355 315
Net assets 2,211 2,111 1,955
Basic earnings per share 16.5p 24.4p 21.4p
Basic earnings per share before 22.6p 24.5p 22.0p
exceptional items
(Turnover represents Safeway Group and share of BP joint venture sales excluding
VAT. 31 March 2001 figures have been restated for the adoption of FRS 19
Deferred Tax using figures in the 5 year summary table included in the annual
report for the year ended 30 March 2002. The EBITDA figures are sourced from the
EBITDA graph in the Financial Review for the year ended 29 March 2003)
The market capitalisation of Safeway based on the closing mid-market price of a
Safeway Share on 12 December 2003 (being 283.75 pence) is £3,010 million.
The current Safeway store portfolio (after the divestment of 52 stores), based
on Morrisons measurement of store sales area which it estimates would reduce
Safeway's reported store sales area by approximately 10 per cent. comprises:
Store size (sq. ft.)
Above 25,000 15,000-25,000 Below 15,000
No. of stores 118 171 138
Total sales area ('000 sq. ft.) 3,510 3,413 1,321
% of total sales area 43% 41% 16%
Sales per sq. ft. (per week) £16.26 £16.39 £16.62
No. of transactions 27.9 22.2 15.2
('000 per store per week)
Average basket size £16.23 £12.97 £9.64
(Sales per sq. ft. excludes petrol and multisaves, and the sales area has been
reclassified on a Morrisons basis for the 12 months to 29 March 2003. Average
basket size excludes multisaves and is based on an average for the 12 months to
29 March 2003 before adjustment for store size reclassifications. All numbers
derived with multisaves adjustments and store reclassifications are Morrisons
estimates)
7. Current trading and prospects
Morrisons current trading
Morrisons trading performance remains strong and the momentum of the business
has continued in the second half of the current financial year. Morrisons sales
over the seventeen weeks ended 7 December 2003 have shown 15.9 per cent. growth
(compared with 14.9 per cent. at the interim stage). The like-for-like sales
growth for the same period, excluding petrol, was 8.8 per cent. (interim: 8.0
per cent.) or 9.6 per cent. including petrol (interim: 9.0 per cent.).
Morrisons has opened nine new stores in the current financial year, two of which
broke record sales figures for an opening week. In the coming financial year
seven new store openings are planned.
Safeway's current trading
In its second quarter trading statement released on 29 October 2003, Safeway
announced that sales grew by 1.2 per cent. in the 28 weeks to 11 October 2003 to
£5,181 million, including a like-for-like sales increase of 0.1 per cent.
On 20 November 2003, Safeway issued its interim results statement for the 28
weeks to 11 October 2003. In these results, Safeway announced that it had
adopted the Accounting Standards Board new guidance on revenue recognition. As a
result, total first half sales were restated to £4,903 million, implying a
like-for-like sales decline of 2.5 per cent. in the first half.
Prospects for the Enlarged Group
The directors of Morrisons are confident in the prospects for the Enlarged Group
and that, as a result of the platform created through the Merger and the
expected trading and cost synergies, the Enlarged Group should be well
positioned to drive business performance in the coming financial year and
beyond.
8. Accounting and year-end
The Enlarged Group will adopt Morrisons 31 January year-end and accounting
policies including the application of Morrisons depreciation rates and
practices. The effect of this in the financial year to 29 March 2003 would have
resulted in additional depreciation of approximately £80 million if Safeway had
been consolidated in Morrisons accounts.
9. Financial impact
The impact of the transaction on earnings per share (excluding restructuring
costs) is expected to be broadly neutral in the year ending January 2005 and
enhancing for earnings per share (excluding restructuring costs) thereafter
despite the application of Morrisons depreciation rates and practices. Based on
the projected synergies, the Enlarged Group is expected to achieve its cost of
capital by the year ending January 2008. Strong cash generation is an important
feature of the Enlarged Group.**
The aggregate of the net debt of Safeway and cash balance of Morrisons at the
respective dates of their interim statements for the first half of the current
financial years is net debt of some £925 million. In addition, Morrisons
proposes to spend over £1.5 billion on capital expenditure over the next three
years, as set out in section 2 above. Despite this level of expenditure, the
Enlarged Group's expected ability to generate significant amounts of cash,
particularly as the benefits of the Merger come through, will enable net debt to
be reduced substantially in the years ahead.
10. Dividends
The Enlarged Group will pay an interim dividend in November each year and a
final dividend in May each year in line with Morrisons existing dividend
timetable. Safeway Shareholders will remain entitled to the interim dividend of
3.05 pence per Safeway Share declared on 20 November 2003 which shall be payable
on 9 February 2004 to Safeway Shareholders on the Safeway register as at 28
November 2003.
Strong growth in earnings per share has enabled Morrisons to increase dividends
by 20 per cent. or more in 9 of the last 10 years and Morrisons intends to
continue to pursue a progressive dividend policy.
11. Details of the proposed Offer
Under the terms of the Offer, Safeway Shareholders will receive:
for each Safeway Share 1 new Morrisons Share plus 60 pence in cash
Safeway Shares will be acquired under the Offer fully paid and free from all
liens, equities, charges, encumbrances and other interests and together with all
rights now or hereafter attaching to them, including the right to receive all
dividends declared, made or paid hereafter, other than the interim dividend of
3.05 pence per Safeway Share declared on 20 November 2003 which shall be payable
on 9 February 2004 to Safeway Shareholders on the Safeway register as at 28
November 2003.
The new Morrisons Shares issued pursuant to the Offer will be issued credited as
fully paid and will rank pari passu in all respects with the existing Morrisons
Shares, including (save as provided below) the right to receive and retain in
full future dividends and other distributions (if any) declared, made or paid
hereafter. Depending on the date on which the Merger is completed, existing
Safeway Shareholders will be eligible to receive and retain either the Morrisons
final dividend for the financial year ending 31 January 2004 or the Safeway
final dividend for the financial year ending 30 March 2004.
The Offer will be subject to the conditions set out in Appendix I.
Due to the size of Safeway relative to that of Morrisons, the Offer will require
approval by an ordinary resolution of Morrisons Shareholders, to be proposed at
an extraordinary general meeting of Morrisons.
12. Mix and match facility
Safeway Shareholders who validly accept the Offer (other than certain overseas
shareholders) may elect, subject to availability, to vary the proportions in
which they receive new Morrisons Shares and cash consideration for their Safeway
Shares.
Elections made by Safeway Shareholders under the Mix and Match Facility may be
made by Safeway Shareholders in respect of all or part of their holdings of
Safeway Shares but will only be satisfied to the extent that other Safeway
Shareholders make offsetting elections. To the extent that elections cannot be
satisfied in full, they will be scaled down on a pro rata basis.
To the extent that elections can be satisfied, Safeway Shareholders who make
elections under the Mix and Match Facility will receive new Morrisons Shares
instead of cash and vice versa on the basis of 223 pence in cash for each new
Morrisons Share which they otherwise would have been issued.
As a result, Safeway Shareholders who make an election under the Mix and Match
Facility will not necessarily know the exact number of new Morrisons Shares or
the amount of cash which they will receive until settlement of the consideration
under the Offer. An announcement will be made, when the Offer becomes or is
declared wholly unconditional, of the approximate extent to which elections
under the Mix and Match Facility will be satisfied.
The Mix and Match Facility will remain open until 3.00 p.m. on the first closing
date of the Offer. If the Offer is not then unconditional as to acceptances,
Morrisons may extend the Mix and Match Facility to a later date. If the Mix and
Match Facility has been closed, Morrisons reserves the right to re-introduce a
mix and match facility, subject to the Code. The Mix and Match Facility will be
conditional on the Offer becoming or being declared unconditional in all
respects.
Further details on the terms of the Mix and Match Facility will be contained in
the formal offer document.
13. Structure of the Merger
Morrisons and Safeway have agreed that, if Morrisons so elects, the Merger may
be implemented by means of a scheme of arrangement between Safeway and its
shareholders under section 425 of the Companies Act. In this event, the Merger
will be implemented on the same terms, so far as applicable, as those which
would apply to the Offer. The procedure would involve an application by Safeway
to the Court to sanction the Scheme and confirm the cancellation of all the
scheme shares (generally the Safeway Shares at the scheme record date), in
consideration for which Safeway Shareholders would receive new Morrisons Shares
and cash on the basis set out above. Before the Court order could be sought, the
Scheme would require approval by Safeway Shareholders at a Court convened
meeting and approval of the Safeway Shareholders of certain resolutions which
would be proposed at an extraordinary general meeting of Safeway.
The Court meeting would be convened by order of the Court for the purposes of
considering and, if thought fit, approving the Scheme (with or without
modification). The Scheme would be approved at the Court meeting if a majority
in number representing not less than 75 per cent. in value of the Safeway
Shareholders present and voting, either in person or by proxy, votes in favour
of the Scheme. The extraordinary general meeting of Safeway would be convened
for the purposes of considering and, if thought fit, passing a special
resolution to approve the reduction of Safeway's share capital and amendments to
the articles of association of Safeway necessary to implement the Scheme and any
other resolutions that may be necessary.
Once the necessary approvals from the Safeway Shareholders have been obtained
and the other Conditions have been satisfied or (where applicable) waived, the
Scheme would become effective upon sanction by the Court and registration of the
Court order by the Registrar of Companies in England and Wales.
It is intended that, following the Merger becoming effective (or, if applicable,
becoming or being declared unconditional in all respects), and subject to
applicable requirements of the London Stock Exchange, Morrisons will procure
that Safeway will apply to the London Stock Exchange for the Safeway Shares to
cease trading and to the UK Listing Authority to remove the Safeway Shares from
the Official List.
If Morrisons does elect to implement the Merger by way of an Offer, and if
sufficient acceptances of the Offer are received and/or sufficient Safeway
Shares are otherwise acquired, it is the intention of Morrisons to apply the
provisions of sections 428 and 430F (inclusive) of the Companies Act to acquire
compulsorily any outstanding Safeway Shares to which the Offer relates.
It is expected that formal documentation relating to the Merger will be
despatched to shareholders of Morrisons and Safeway in January 2004. Morrisons
Shareholders will receive listing particulars in relation to Morrisons and a
circular to Morrisons Shareholders, together with a notice of an extraordinary
general meeting of Morrisons to propose resolutions, inter alia, approving the
Offer. At the same time the Offer Document or scheme document whichever is
applicable, together with the listing particulars in relation to Morrisons, will
be despatched to Safeway Shareholders. The availability of the Offer to persons
not resident in the UK may be affected by the laws of relevant jurisdictions.
Safeway Shareholders who are not resident in the UK should inform themselves
about and observe any applicable requirements.
14. Share option schemes
The Offer will extend to Safeway Shares issued or unconditionally allotted upon
the exercise of options under the Safeway Share Option Schemes whilst the Offer
remains open for acceptance (or such earlier date as, subject to the Code,
Morrisons and Safeway may decide). Appropriate proposals will be made to holders
of options under the Safeway Share Option Schemes following the Offer becoming
or being declared wholly unconditional.
15. Settlement, listing and dealing
Application will be made to the London Stock Exchange for the new Morrisons
Shares to be admitted to trading on its market for listed securities and to the
UK Listing Authority for the new Morrisons Shares to be admitted to the Official
List. It is expected that admission to the Official List will become effective
and that dealings will commence on the first business day following the day on
which the Offer becomes or is declared unconditional in all respects (save for
any condition relating to Admission).
Certificates for new Morrisons Shares to be issued to Safeway Shareholders and
cheques for cash consideration will be despatched no later than fourteen days
after the Offer becomes or is declared unconditional in all respects. No
certificates for new Morrisons Shares or cheques for cash consideration will be
issued in respect of the entitlements of those Safeway Shareholders who hold
their shares in CREST, settlement for which will be made through the applicable
CREST procedures.
Morrisons Shareholders who hold their shares in certificated form will retain
their existing share certificates, which will remain valid.
Further details on listing, dealing and settlement will be included in the
formal documents to be sent to Morrisons Shareholders and Safeway Shareholders.
16. Inducement fee
Morrisons and Safeway have entered into a new Merger Agreement under which
Safeway has agreed to pay Morrisons an inducement fee of £30 million if (i) the
Offer lapses or is withdrawn in accordance with its terms for whatever reason
and prior thereto an independent competing offer for Safeway has been announced
and that or any other independent competing offer becomes or is declared wholly
unconditional within 12 months of the date hereof; or (ii) Safeway enters into
an agreement to dispose of any fixed assets having an aggregate value of at
least £20 million prior to the termination of the Merger Agreement or, at any
time, having a value of at least £300 million and, in each case, such agreement
completes within 12 months of the date hereof without the consent of Morrisons.
17. Recommendation of the board of Morrisons
The board of Morrisons, which has been advised by ABN AMRO, its financial
adviser, considers the Offer to be in the best interests of Morrisons
Shareholders as a whole. Accordingly, the directors of Morrisons unanimously
intend to recommend that Morrisons Shareholders vote in favour of the
resolutions to be proposed at the Extraordinary General Meeting, as they intend
to do in respect of their own respective beneficial holdings. In providing
advice to the board of Morrisons, ABN AMRO has taken into account the commercial
assessments of the Offer by the directors of Morrisons.
Enquiries:
Morrisons On day of announcement: c/o Citigate Dewe Rogerson
Sir Kenneth Morrison Tel: +44 (0)20 7638 9571
Robert Stott
Martin Ackroyd Thereafter: Morrisons Press Office (Gillian Hall)
Tel: +44 (0)1924 875 308
ABN AMRO
Nigel Turner Tel: +44 (0)20 7678 7788
Jitesh Gadhia Tel: +44 (0)20 7678 7678
Hoare Govett
Nigel Mills Tel: +44 (0)20 7678 1830
Citigate Dewe Rogerson Tel: +44 (0)20 7638 9571
Jonathan Clare
Simon Rigby
Safeway Tel: +44 (0)20 7493 1040
David Webster
Simon Laffin
Steve Webb
HSBC Tel: +44(0) 20 7991 8888
Rupert Faure Walker
Aidan Wallis
Citigroup Tel: +44 (0)20 7986 4000
Robert Swannell
David Wormsley
Ian Hart
Brunswick Group Limited Tel: +44 (0)20 7404 5959
Susan Gilchrist
Timothy Grey
* The expected operating cost savings have been calculated on the basis of the
existing cost and operating structures of the companies and by reference to
current prices and exchange rates and the current regulatory environment. These
statements of estimated cost savings and one-off costs for achieving them relate
to future actions and circumstances which, by their nature, involve risks,
uncertainties and other factors. Because of this, the cost savings referred to
may not be achieved, or those achieved could be materially different from those
estimated. This statement should not be interpreted to mean that the earnings
per share in the financial year following the Merger, or in any subsequent
period, would necessarily match or be greater than those for the relevant
preceding financial period.
** The statements that the impact of the transaction on earnings per share
(excluding restructuring costs) is expected to be broadly neutral in the year
ending January 2005 and enhancing for earnings per share (excluding
restructuring costs) thereafter, and based on the expected synergies the
Enlarged Group is expected to achieve its cost of capital by the year ending
January 2008, do not constitute a profit forecast and should not be interpreted
to mean that earnings per share in the financial year commencing 2 February
2004, or in any subsequent period, will necessarily match or be greater than
those for the relevant preceding financial period.
ABN AMRO is acting for Morrisons and no one else in connection with the Offer
and will not be responsible to anyone other than Morrisons for providing the
protections afforded to clients of ABN AMRO or for providing advice in relation
to the Offer.
Hoare Govett is acting as broker for Morrisons and no one else in connection
with the Offer and will not be responsible to anyone other than Morrisons for
providing the protections afforded to clients of Hoare Govett or for providing
advice in relation to the Offer.
HSBC, which is regulated in the United Kingdom for the conduct of investment
business by The Financial Services Authority, is acting for Safeway and no one
else in relation to the Offer and will not be responsible to anyone other than
Safeway for providing the protections afforded to customers of HSBC, nor for
providing advice in relation to the Offer.
Citigroup Global Markets Limited is acting for Safeway and no one else in
connection with the Offer and will not be responsible to anyone other than
Safeway for providing the protections afforded to clients of Citigroup Global
Markets Limited or for providing advice in relation to the Offer.
This announcement does not constitute an offer to sell or invitation to purchase
any securities or the solicitation of any vote or approval in any jurisdiction.
The release, publication or distribution of this announcement in certain
jurisdictions may be restricted by law and therefore persons in such
jurisdictions into which this announcement is released, published or distributed
should inform themselves about and observe such restrictions.
The Offer will not be made, directly or indirectly, in or into, or by the use of
mails or any means or instrumentality (including, without limitation,
telephonically or electronically) of interstate or foreign commerce of, or any
facility of a national, state or other securities exchange of, the United
States, Canada, Australia or Japan. Accordingly, copies of this announcement are
not being, and must not be, directly or indirectly, mailed or otherwise
forwarded, distributed or sent in or into or from the United States, Canada,
Australia or Japan and the Offer will not be capable of acceptance by any such
use, instrumentality or facility within the United States, Canada, Australia and
Japan and persons receiving this announcement (including custodians, nominees
and trustees) must not mail or otherwise forward, distribute or send it in or
into or from the United States, Canada, Australia or Japan. Doing so may render
invalid any purported acceptance of the Offer. The availability of the Offer to
persons who are not resident in the United Kingdom may be affected by the laws
of the relevant jurisdictions. Persons who are not resident in the United
Kingdom should inform themselves about and observe any applicable requirements.
The new Morrisons Shares have not been, nor will they be, registered under the
US Securities Act or under the securities laws of any state, district or other
jurisdiction of the United States; the relevant clearances have not been, nor
will they be, obtained from the securities commission of any province or
territory of Canada; no prospectus has been lodged with, or registered by, the
Australian Securities and Investments Commission or the Japanese Ministry of
Finance; and the new Morrisons Shares have not been, nor will they be,
registered under or offered in compliance with applicable securities laws of any
state, province, territory or jurisdiction of Canada, Australia or Japan.
Accordingly, the new Morrisons Shares may not (unless an exemption under
relevant securities laws is applicable) be offered, sold, resold or delivered,
directly or indirectly, in or into the United States, Canada, Australia or Japan
or any other jurisdiction if to do so would constitute a violation of the
relevant laws of, or require registration thereof in, such jurisdiction or to,
or for the account or benefit of, any US, Canadian, Australian or Japanese
person.
Appendix II contains the definitions of certain terms used in this announcement.
- End -
APPENDIX I
CONDITIONS TO THE OFFER
The Offer will be subject to the following Conditions:
(a) valid acceptances being received (and not, where permitted, withdrawn) by not later than 3.00 p.m. on the first
closing date of the Offer (or such later time(s) and/or date(s) as Morrisons may, subject to the rules of the
Code, decide) in respect of not less than 90 per cent. (or such lesser percentage as Morrisons may decide) of the
Safeway Shares to which the Offer relates, provided that, unless agreed by the Panel, this condition will not be
satisfied unless Morrisons and/or its wholly-owned subsidiaries have acquired or agreed to acquire (pursuant to
the Offer or otherwise), directly or indirectly, Safeway Shares carrying, in aggregate, over 50 per cent. of the
voting rights then normally exercisable at general meetings of Safeway on such basis as may be required by the
Panel (including for this purpose, to the extent (if any) required by the Panel, any voting rights attaching to
any shares which are unconditionally allotted or issued before the Offer becomes or is declared unconditional as
to acceptances, whether pursuant to the exercise of conversion or subscription rights or otherwise); and for this
purpose (i) the expression 'Safeway Shares to which the Offer relates' shall be construed in accordance with
sections 428-430F of the Companies Act 1985; and (ii) shares which have been unconditionally allotted shall be
deemed to carry the voting rights which they will carry on issue;
(b) the passing at an Extraordinary General Meeting (or at any adjournment thereof) of Morrisons of any resolution or
resolutions which are necessary or, in the opinion of Morrisons, desirable to approve, fund, effect and implement
the Offer and the acquisition of Safeway and of any Safeway Shares;
(c) the admission to the Official List of the new Morrisons Shares becoming effective in accordance with the Listing
Rules and the admission of such shares to the London Stock Exchange's market for listed securities becoming
effective or (if Morrisons so determines and subject to the consent of the Panel) the UK Listing Authority
agreeing or confirming its decision to admit such shares to the Official List and the London Stock Exchange
agreeing to admit such shares to trading subject only to the allotment of such shares;
(d) no government or governmental, quasi-governmental, supranational, statutory or regulatory body, or any court,
institution, investigative body, association, trade agency or professional or environmental body or (without
prejudice to the generality of the foregoing) any other person or body in any jurisdiction (each, a 'Relevant
Authority') having decided to take, instituted, implemented or threatened any action, proceedings, suit,
investigation or enquiry or enacted, made or proposed any statute, regulation or order or otherwise taken any
other step or done any thing, and there not being outstanding any statute, legislation or order, that would or
might:
(i) make the Offer void, illegal or unenforceable in or under the laws of any jurisdiction, or otherwise
directly or indirectly restrain, prevent, prohibit, restrict or delay the same or impose additional
conditions or obligations with respect to the Offer or otherwise materially impede, challenge or
interfere with the Offer or the implementation of the same (or any matter arising therefrom) or require
amendment or alteration to the terms of the Offer;
(ii) restrict, restrain, prohibit, impose additional conditions or obligations with respect to, or otherwise
materially interfere with or delay the implementation of, the Offer or the acquisition of any Safeway
Shares by Morrisons or any matters arising therefrom;
(iii) require, prevent, delay, alter the terms envisaged for any proposed divestiture or otherwise affect the
divestiture by Morrisons or any of its subsidiaries, subsidiary undertakings or associated undertakings
(including any company of which 20 per cent. or more of the voting capital is held by the Morrisons Group
or any partnership, joint venture, firm or company in which any of them may be interested) (together the
'wider Morrisons Group') or Safeway or any of its subsidiaries, subsidiary undertakings or associated
undertakings (including any company of which 20 per cent. or more of the voting capital is held by the
Safeway Group or any partnership, joint venture, firm or company in which any of them may be interested)
(together the 'wider Safeway Group') of all or any portion of their respective businesses, assets or
property or of any Safeway Shares or other securities in Safeway or impose any limitation on the ability
of any of them to conduct their respective businesses or own their respective assets or properties or any
part thereof which is material to the Morrisons Group or the Safeway Group, as the case may be, each such
Group taken as a whole;
(iv) require any member of the wider Morrisons Group or the wider Safeway Group to offer to acquire any shares
or other securities or rights thereover in any member of the wider Safeway Group owned by any third party
(other than in the implementation of the Offer) when such acquisition would be material to the Morrisons
Group, or the Safeway Group, as the case may be, each such Group taken as a whole;
(v) impose any limitation on the ability of any member of the wider Morrisons Group or any number of the
wider Safeway Group to conduct, integrate or co-ordinate its business, or any part of it, with the
business of any other member of the wider Morrisons Group or any other member of the wider Safeway Group
which is materially adverse to the Morrisons Group or the Safeway Group, as the case may be, each such
Group taken as a whole;
(vi) result in any member of the wider Safeway Group or any member of the wider Morrisons Group ceasing to be
able to carry on business under any name under which it presently does so, to an extent which is material
to the Morrisons Group or the Safeway Group, as the case may be, each such Group taken as a whole;
(vii) otherwise adversely affect any or all of the businesses, assets, profits, financial or trading position
or prospects of any member of the wider Morrisons Group or the wider Safeway Group or the exercise of
rights of shares of any company in the Safeway Group in a way which is material in the context of the
Morrisons Group or the Safeway Group, as the case may be, each such Group taken as a whole,
and all applicable waiting periods during which such Relevant Authority could take, institute, implement or
threaten any such action, proceeding, suit, investigation or enquiry or otherwise intervene having expired,
lapsed or been terminated;
(e) all authorisations, orders, grants, consents, clearances, licences, permissions and approvals, in any
jurisdiction, necessary or appropriate for or in respect of the Offer or the carrying on of the business of any
member of the wider Safeway Group or the wider Morrisons Group, the issue of the new Morrisons Shares or any
matters arising therefrom, being obtained in a form and on terms satisfactory to Morrisons and Safeway from all
appropriate Relevant Authorities or (without prejudice to the generality of the foregoing) from any persons or
bodies with whom any members of the wider Safeway Group or the wider Morrisons Group has entered into contractual
arrangements and such authorisations, orders, grants, consents, clearances, licences, permissions and approvals
remaining in full force and effect and there being no intimation of any intention to revoke or not to renew the
same and all necessary filings in connection with the Offer having been made, all appropriate waiting and other
time periods (including extensions thereto) under any applicable legislation and regulations in any jurisdiction
having expired, lapsed or been terminated and all necessary statutory or regulatory obligations in any
jurisdiction in respect of the Offer or any matters arising therefrom having been complied with, in each case
where the direct consequence of a failure to make such a notification or filing or to wait for the expiry,
termination or lapsing of any waiting period or to comply with any such obligation or obtain any necessary
authorisation would have a material adverse effect on the Morrisons Group or the Safeway Group, as the case may
be, each such Group taken as a whole;
(f) except as publicly announced by Morrisons or Safeway (by the delivery of an announcement to a Regulatory
Information Service) prior to the date of this announcement or as fairly disclosed to Morrisons by or on behalf
of Safeway or to Safeway by or on behalf of Morrisons prior to the date of this announcement, there being no
provision of any material agreement, instrument, permit, lease or other instrument, licence or other arrangement
to which any member of the wider Safeway Group or wider Morrisons Group is a party or by or to which it or any of
its assets may be bound or subject which, as a consequence of the Offer, or the implementation of the same, or
because of a change in the control or management of Safeway or Morrisons or any member of the Safeway Group or
Morrisons Group (or any matters arising therefrom) or otherwise, could or might have the result that:
(i) any moneys borrowed by, or other indebtedness or liabilities, actual or contingent, of, or grant
available to, any member of the wider Safeway Group or wider Morrisons Group becomes or is capable of
being declared repayable immediately or earlier than the repayment date stated in such agreement,
instrument or other arrangement or the ability of any member of the wider Safeway Group to borrow moneys
or incur indebtedness is withdrawn or materially adversely affected;
(ii) any mortgage, charge or other security interest is created over the whole or any part of the business,
property, assets or interests of any member of the wider Safeway Group or wider Morrisons Group or any
such security (whenever arising) becomes enforceable which is material to the Morrisons Group or the
Safeway Group, as the case may be, each such Group taken as a whole;
(iii) any such agreement, instrument, permit, licence or other arrangement, or any right, interest, liability
or obligation of any member of the wider Safeway Group or wider Morrisons Group therein, is terminated or
adversely modified or affected or any adverse action is taken or onerous obligation arises thereunder
which is material to the Morrisons Group or the Safeway Group, as the case may be, each such Group taken
as a whole;
(iv) the financial or trading position, prospects or value of any member of the wider Safeway Group is
prejudiced or adversely affected in a way which is material to the Morrisons Group or the Safeway Group
as the case may be, each such Group taken as a whole;
(v) any asset(s) or interest(s) of, or any asset the use of which is enjoyed by, any member of the wider
Morrisons Group or the wider Safeway Group (which is material to the Morrisons Group or the Safeway
Group, as the case may be, each such Group taken as a whole) being or falling to be disposed of or
ceasing to be available to any member of the wider Morrisons Group or the wider Safeway Group or any
right arising under which any such asset or interest could be required to be disposed of or could cease
to be available to any member of the wider Morrisons Group or the wider Safeway Group otherwise than in
the ordinary course of business;
(vi) the rights, liabilities, obligations or interests or business of any member of the wider Safeway Group or
wider Morrisons Group in or with any other person, firm or company (or any arrangement relating to such
interest or business) is terminated or adversely modified or affected in a way which is material to the
Morrisons Group or the Safeway Group, as the case may be, each such Group taken as a whole; or
(vii) any member of the wider Safeway Group or wider Morrisons Group ceases to be able to carry on business
which is material to the Morrisons Group or the Safeway Group, as the case may be, each such Group taken
as a whole, under any name under which it currently does so,
and no event having occurred which, under any provision of any such arrangement, agreement, licence, permit or
other instrument, could result in any of the events or circumstances which are referred to in paragraphs (i) to
(vii) of this Condition (f);
(g) since, in the case of Morrisons, 2 February 2003 or, in the case of Safeway, 29 March 2003, and except as
disclosed in Morrisons or Safeway's annual report and accounts for the respective year then ended or as otherwise
publicly announced by Morrisons or Safeway (by the delivery of an announcement to a Regulatory Information
Service) prior to the date of this announcement or as otherwise fairly disclosed to Morrisons by or on behalf of
Safeway or to Safeway by or on behalf of Morrisons prior to the date of this announcement, no member of the wider
Morrisons Group or the wider Safeway Group having:
(i) issued or agreed to issue, or authorised or proposed the issue of, additional shares of any class, or
securities convertible into or exchangeable for, or rights, warrants or options to subscribe for or
acquire, any such shares or convertible securities other than as between Morrisons and wholly-owned
subsidiaries of Morrisons or between Safeway and wholly-owned subsidiaries of Safeway and other than any
options granted as disclosed by Morrisons to Safeway or by Safeway to Morrisons prior to the date of this
announcement and any shares issued upon the exercise of any options granted under any of the Morrisons
Share Option Schemes or the Safeway Share Option Schemes as disclosed by Morrisons or Safeway;
(ii) purchased or redeemed or repaid any of its own shares or other securities or reduced or made any other
change to any part of its share capital;
(iii) (save for the payment of the interim dividend of 3.05 pence per Safeway Share payable on 9 February 2004
in respect of the twenty-eight week period ended 11 October 2003) recommended, declared, paid or made (or
proposed to recommend, declare, pay or make) any bonus, dividend or other distribution whether payable in
cash or otherwise (other than, in the case of the wider Morrisons Group, to Morrisons or a wholly-owned
subsidiary of Morrisons or, in the case of the wider Safeway Group, to Safeway or a wholly-owned
subsidiary of Safeway);
(iv) other than pursuant to the Offer, made or authorised any change in its share or loan capital;
(v) other than pursuant to the Offer and other than any acquisition or disposal in the ordinary course of
business or a transaction between Morrisons and a wholly-owned subsidiary of Morrisons or between Safeway
and a wholly-owned subsidiary of Safeway, merged with, demerged or acquired any body corporate,
partnership or business or acquired or disposed of or transferred, mortgaged or charged or created any
security interest over any assets or any right, title or interest in any assets (including shares in any
undertaking and trade investments) or authorised the same which, in any such case, involves or could
involve an obligation of a nature or magnitude which is material in the context of the Offer;
(vi) issued or authorised the issue of, or made any change in or to, any debentures or incurred or increased
any indebtedness or liability (actual or contingent) of an aggregate amount which might materially and
adversely affect the financial or trading position or the prospects of the wider Morrisons Group or the
wider Safeway Group, as the case may be;
(vii) entered into, varied, or authorised any agreement, transaction, arrangement or commitment (whether in
respect of capital expenditure or otherwise) which:
(A) is of a long-term, onerous or unusual nature or magnitude or which is or could involve an
obligation of such nature or magnitude; or
(B) could materially restrict the business of the wider Morrisons Group or the wider Safeway Group, as
the case may be, each such Group taken as a whole; or
(C) is other than in the ordinary course of business;
(viii) (other than transactions between one wholly-owned member of the Morrisons Group or the Safeway Group and
another such member and other than pursuant to the Offer or in the ordinary course of business) entered
into, implemented, effected or authorised or announced its intention to propose any merger, demerger,
reconstruction, amalgamation, scheme, commitment or other transaction or arrangement of a material nature
to the Morrisons Group or the Safeway Group, as the case may be, each such Group taken as a whole, in
respect of itself or another member of the wider Morrisons Group or the wider Safeway Group;
(ix) entered into or varied the terms of any contract, agreement or arrangement with any of the directors or
senior executives of any member of the wider Morrisons Group or the wider Safeway Group;
(x) (other than in respect of a member of the wider Morrisons Group or the wider Safeway Group which is
dormant and was solvent at the relevant time) taken or proposed any corporate action or had any legal
proceedings instituted or threatened against it or petition presented or order made for its winding-up
(voluntarily or otherwise), dissolution or reorganisation or for the appointment of a receiver,
administrator, administrative receiver, trustee or similar officer of all or any material part of its
assets and revenues or any analogous proceedings in any jurisdiction or appointed any analogous person in
any jurisdiction;
(xi) been unable, or admitted that it is unable, to pay its debts or having stopped or suspended (or
threatened to stop or suspend) payment of its debts generally or ceased or threatened to cease carrying
on all or a substantial part of its business;
(xii) waived or compromised any claim which is material in the context of the Morrisons Group or the Safeway
Group, as the case may be, each such Group taken as a whole, other than in the ordinary course of
business;
(xiii) made any material alteration or, in the case of Safeway only, any alternation to its memorandum or
articles of association (or equivalent constitutional documents in respect of overseas jurisdictions of
incorporation); or
(xiv) entered into any agreement, commitment or arrangement or passed any resolution or made any offer (which
remains open for acceptance) or proposed or announced any intention with respect to any of the
transactions, matters or events referred to in this condition (g);
(h) since, in the case of Morrisons, 2 February 2003, and, in the case of Safeway, 29 March 2003, and except as
disclosed in Morrisons or Safeway's annual report and accounts for the respective year then ended or as otherwise
publicly announced by Morrisons or Safeway (by the delivery of an announcement to a Regulatory Information
Service) prior to the date of this announcement or as otherwise fairly disclosed to Morrisons by or on behalf of
Safeway or to Safeway by or on behalf of Morrisons prior to the date of this announcement:
(i) no litigation, arbitration, prosecution or other legal proceedings having been instituted, announced or
threatened or become pending or remained outstanding by or against any member of the wider Safeway Group
or the wider Morrisons Group or to which any member of the wider Safeway Group or the wider Morrisons
Group is or may become a party (whether as claimant, defendant or otherwise);
(ii) no adverse change having occurred or deterioration in the business, assets, financial or trading
position, profits or prospects of any member of the wider Safeway Group or the wider Morrisons Group;
(iii) no enquiry or investigation by or complaint or reference to, any Relevant Authority having been
threatened, announced, implemented or instituted or remaining outstanding against or in respect of any
member of the wider Morrisons Group or the wider Safeway Group; or
(iv) no contingent or other liability of any member of the wider Morrisons Group or the wider Safeway Group
having arisen or become apparent or increased,
and which, in each case, adversely affects the Morrisons Group or the Safeway Group, as the case may be,
to an extent which is material to the Morrisons Group or the Safeway Group as the case may be, each such
Group taken as a whole;
(i) Morrisons not having discovered:
(i) that any financial or business or other information concerning the wider Safeway Group disclosed at any
time by or on behalf of any member of the wider Safeway Group, whether publicly, to any member of the
wider Morrisons Group or otherwise, is misleading or contains any misrepresentation of fact or omits to
state a fact necessary to make any information contained therein not misleading and which was not
subsequently corrected before the date of this announcement by disclosure either publicly or otherwise to
Morrisons where the misrepresentation or omission is material in the context of the Offer;
(ii) that any member of the wider Safeway Group is subject to any liability (actual or contingent) which is
not disclosed in Safeway's annual report and accounts for the financial year ended 29 March 2003 or as
otherwise publicly announced by Safeway (by the delivery of an announcement to a Regulatory Information
Service) prior to the date of this announcement or as otherwise fairly disclosed to Morrisons by or on
behalf of Safeway prior to the date of this announcement and which is material in the context of the
Safeway Group taken as a whole;
(iii) any information which materially affects the import of any material information disclosed to Morrisons at
any time by or on behalf of any member of the wider Safeway Group;
(iv) that, save as fairly disclosed to Morrisons by or on behalf of Safeway prior to the date of this
announcement, any past or present member of the wider Safeway Group has not complied with any applicable
legislation or regulations of any jurisdiction with regard to the use, treatment, handling, storage,
transport, release, disposal, discharge, spillage, leak or emission of any waste or hazardous substance
or any substance likely to impair the environment or harm human health, or otherwise relating to
environmental matters or the health and safety of any person, or that there has otherwise been any such
use, treatment, handling, storage, transport, release, disposal, discharge, spillage, leak or emission
(whether or not this constituted a non-compliance by any person with any legislation or regulations and
wherever the same may have taken place) which, in any case, would be likely to give rise to any material
liability (whether actual or contingent) or cost on the part of the wider Safeway Group; or
(v) that, save as fairly disclosed to Morrisons by or on behalf of Safeway prior to the date of this
announcement, that circumstances exist (whether as a result of the Offer or otherwise) which might lead
to any Relevant Authority instituting or any member of the wider Safeway Group or the wider Morrisons
Group might be required to institute, an environmental audit or take any other steps which in any such
case might result in any material actual or contingent liability to improve or install new plant or
equipment or make good, repair, re-instate or clean up any land or other asset now or previously owned,
occupied or made use of by any member of the wider Safeway Group which is material in the context of the
wider Safeway Group; and
(j) Safeway not having discovered:
(i) that any financial or business or other information concerning the wider Morrisons Group disclosed at any
time by or on behalf of any member of the wider Morrisons Group, whether publicly, to any member of the
wider Safeway Group or otherwise, is misleading or contains any misrepresentation of fact or omits to
state a fact necessary to make any information contained therein not misleading and which was not
subsequently corrected before the date of this announcement by disclosure either publicly or otherwise to
Safeway where this misrepresentation or omission is material in the context of the Offer;
(ii) that any member of the wider Morrisons Group is subject to any liability (actual or contingent) which is
not disclosed in Morrisons annual report and accounts for the financial year ended 2 February 2003 or as
otherwise publicly announced by Morrisons (by the delivery of an announcement to a Regulatory Information
Service) prior to the date of this announcement or as otherwise fairly disclosed to Safeway by or on
behalf of Morrisons prior to the date of this announcement and which is material in the context of the
Morrisons Group taken as a whole;
(iii) any information which materially affects the import of any material information disclosed to Safeway at
any time by or on behalf of any member of the wider Morrisons Group;
(iv) that, save as fairly disclosed to Safeway by or on behalf of Morrisons prior to the date of this
announcement, any past or present member of the wider Morrisons Group has not complied with any
applicable legislation or regulations of any jurisdiction with regard to the use, treatment, handling,
storage, transport, release, disposal, discharge, spillage, leak or emission of any waste or hazardous
substance or any substance likely to impair the environment or harm human health, or otherwise relating
to environmental matters or the health and safety of any person, or that there has otherwise been any
such use, treatment, handling, storage, transport, release, disposal, discharge, spillage, leak or
emission (whether or not this constituted a non-compliance by any person with any legislation or
regulations and wherever the same may have taken place) which, in any case, would be likely to give rise
to any material liability (whether actual or contingent) or cost on the part of the wider Morrisons
Group; or
(v) that, save as fairly disclosed to Safeway by or on behalf of Morrisons prior to the date of this
announcement, that circumstances exist (whether as a result of the Merger or otherwise) which might lead
to any Relevant Authority instituting or any member of the wider Morrisons Group or the wider Safeway
Group might be required to institute, an environmental audit or take any other steps which in any such
case might result in any material actual or contingent liability to improve or install new plant or
equipment or make good, repair, re-instate or clean up any land or other asset now or previously owned,
occupied or made use of by any member of the wider Morrisons Group which is material in the context of
the wider Morrisons Group.
Waiver of conditions
Subject to the requirements of the Panel, Morrisons reserves the right to waive
in whole or in part, all or any of Conditions (d) to (j). Morrisons has agreed
with Safeway that, until the termination of the Merger Agreement, it will not
waive any of Conditions (d) to (h) or (j), insofar as they relate to Morrisons,
without Safeway's consent unless either (i) the board of Safeway fails to
recommend, or withdraws or modifies adversely its recommendation of, the Offer
or resolves to do the same, or (ii) an independent competing offer is announced.
Such consent will be deemed to have been given within 2 business days of written
confirmation from Morrisons that it is in a position to declare the Offer
unconditional in all respects, subject to satisfaction of Condition (c) and a
written request to that effect by Morrisons unless either, prior to such time,
any such condition has validly been invoked or, at any time thereafter but
before the Offer becomes or is declared wholly unconditional in all respects,
Safeway notifies Morrisons in writing that it withdraws that deemed consent.
Safeway shall only be entitled to withhold such consent in relation to any
Condition in circumstances where, if it were making an offer for Morrisons, the
Panel would permit Safeway to invoke such Condition in accordance with Rule 13
of the Code.
Conditions (b) and (c) must be fulfilled within 21 days after the later of the
first closing date of the Offer and the date on which Condition (a) is fulfilled
and Conditions (d) to (j) (inclusive) must be satisfied as at, or waived on or
before, 21 days after the later of the first closing date of the Offer and the
date on which Condition (a) is fulfilled (or in each case such later date as the
Panel may agree) provided that Morrisons shall be under no obligation to waive
or treat as satisfied any of Conditions (d) to (j) (inclusive) by a date earlier
than the latest date specified above for the satisfaction thereof
notwithstanding that the other conditions of the Offer may at such earlier date
have been waived or fulfilled and that there are at such earlier date no
circumstances indicating that any of such conditions may not be capable of
fulfilment.
If Morrisons is required by the Panel to make an offer for Safeway Shares under
the provisions of Rule 9 of the Code, Morrisons may make such alterations to the
terms and conditions of the Offer as are necessary to comply with the provisions
of that Rule.
Scheme
Morrisons reserves the right to elect to implement the acquisition of the
Safeway Shares by way of a scheme of arrangement under section 425 of the
Companies Act. In such event, the Scheme will be implemented on the same terms
(subject to appropriate amendments), so far as applicable, as those which would
apply to the Offer. In particular, Condition (a) will not apply and the Scheme
will be subject to the following further Conditions:
(a) approval of the Scheme by a majority in number of Safeway Shareholders, representing 75 per cent. or more in
value present and entitled to vote, either in person or by proxy, at the meeting or meetings of the Safeway
Shareholders (or relevant class or classes thereof) as may be convened pursuant to an order of the Court under
section 425 of the Companies Act for the purposes of considering and, if thought fit, approving the Scheme, or at
any adjournment of such Court meeting;
(b) the resolution(s) required to approve and implement the Scheme being duly passed by the requisite majority at an
extraordinary general meeting of Safeway, or at any adjournment of such extraordinary general meeting of Safeway;
and
(c) sanction (with or without modifications, on terms reasonably acceptable to Morrisons) of the Scheme and
confirmation of the reduction of capital involved therein by the Court and an office copy of the order of the
Court sanctioning the Scheme and confirming the reduction of capital involved in the Scheme being delivered to
the Registrar of Companies in England and Wales and being registered by him.
APPENDIX II
Definitions
'ABN AMRO' means ABN AMRO Corporate Finance Limited;
'Admission' means the admission of the new Morrisons Shares to trading on the London Stock
Exchange's market for listed securities and to the Official List;
'ASDA' means Asda Group Limited;
'Citigroup' means Citigroup Global Markets Limited;
'Code' means The City Code on Takeovers and Mergers;
'Companies Act' means the Companies Act 1985 as amended;
'Conditions' means the conditions to the Offer set out in Appendix I;
'Court' means the High Court of Justice in England and Wales;
'Enlarged Group' means the Morrisons Group as enlarged by the acquisition of the Safeway Group;
'Extraordinary General Meeting' means an extraordinary general meeting of Morrisons Shareholders;
'FTE' means full-time employee equivalents;
'Hoare Govett' means Hoare Govett Limited;
'HSBC' means HSBC Bank plc;
'Listing Rules' means the Listing Rules of the UK Listing Authority under section 74 of the
Financial Services and Markets Act 2000;
'London Stock Exchange' means London Stock Exchange plc;
'Merger' means the proposed merger of Morrisons and Safeway pursuant to the Offer;
'Merger Agreement' means an agreement dated 15 December 2003 between (1) Morrisons and (2) Safeway
containing undertakings and other provisions relating to the Merger;
'Mix and Match Facility' means the facility whereby holders of Safeway Shares who validly accept the
Offer may elect to receive either additional new Morrisons Shares or additional
cash (in accordance with the terms and conditions of the Offer) to the extent
only that other holders of Safeway Shares who have accepted the Offer make
off-setting elections
'Morrisons' means Wm Morrison Supermarkets PLC;
'Morrisons Group' means Morrisons and its subsidiaries and subsidiary undertakings;
'Morrisons Shareholders' means the holders of Morrisons Shares;
'Morrisons Shares' means ordinary shares of 10 pence each in the capital of Morrisons;
'new Morrisons Shares' means the Morrisons Shares proposed to be issued, credited as fully paid,
pursuant to the Offer;
'Offer' means the proposed offer to be made by ABN AMRO on behalf of Morrisons for the
entire share capital, issued and to be issued, of Safeway including, where the
context requires, any subsequent revision, variation, extension or renewal
thereof;
'Office of Fair Trading' or 'OFT' means the UK Office of Fair Trade;
'Offer Document' means the document to be sent to holders of Safeway Shares containing the
Offer;
'Official List' means the official list of the UK Listing Authority;
'Original Offer' means the recommended all-share offer made by ABN AMRO on behalf of Morrisons
for the entire share capital, issued and to be issued, of Safeway, as announced
on 9 January 2003;
'Panel' means the Panel on Takeovers and Mergers;
'RDC' means a regional distribution centre;
'Regulatory Information Service' means any information service authorised from time to time by the UK Listing
Authority for the purpose of dissemination of regulatory announcements required
by the Listing Rules;
'Safeway' means Safeway plc;
'Safeway Group' means Safeway and its subsidiaries and subsidiary undertakings;
'Safeway Shareholders' means the holders of Safeway Shares;
'Safeway Shares' means the existing issued or unconditionally allotted and fully paid (or
credited as fully paid) ordinary shares of 25 pence each in Safeway and any
further such shares which are unconditionally allotted or issued while the
Offer remains open for acceptance or, subject to the provisions of the Code, by
such earlier date as Morrisons may determine;
'Safeway Share Option Schemes' means the Safeway 1993 Executive Share Option Scheme, the Safeway 1996
Sharesave Scheme and the Safeway Customer Care Performance Share Option Plan;
'Scheme' means the scheme of arrangement under section 425 of the Companies Act between
Safeway and its shareholders which will be used, if Morrisons so elects, to
implement the Merger;
'Sainsbury' means J Sainsbury plc;
'Tesco' means Tesco plc;
'UK Listing Authority' means the Financial Services Authority in its capacity as the competent
authority for the purposes of Part IV of the Financial Services and Markets Act
2000;
'United States of America', 'US' or means the United States of America, its possessions and territories, all areas
'United States' subject to its jurisdiction or any subdivision thereof, any State of the United
States and the District of Columbia; and
'US Securities Act' means the United States Securities Act of 1933, as amended.
For the purpose of this document, subsidiary, subsidiary undertaking,
undertaking, and associated undertaking have the meanings given by the Companies
Act (but for this purpose ignoring paragraph 20(1)(b) of Schedule 4A of the
Companies Act).
This information is provided by RNS
The company news service from the London Stock Exchange
