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Morrison strikes $6.8bn deal
LONDON, England (CNN) -- William Morrison agreed on Thursday to buy bigger rival supermarket chain Safeway for £4.2 billion ($6.8 billion) in stock and debt. Safeway, the fourth-largest British chain behind Tesco, J Sainsbury, and Wal-Mart-owned Asda, has been losing market share to its rivals and the centre of takeover speculation for some time. Meanwhile, fifth-ranked Morrison has been seeking ways to beat off encroaching competition from Asda in its northern England stronghold. Morrison (MRW), a family run business, said Safeway (SFW) shareholders would receive 1.32 new Morrison shares for every Safeway share they hold – valuing each Safeway share at 277.5 pence each, a 30 percent premium to the closing price on Wednesday. About 1,000 jobs are to be axed from Safeway's head office, Morrison said, David Webster, Chairman of Safeway, said: "In the last three years Safeway has turned around, adding 1.5 million customers and rebuilding profits. As the market place becomes increasingly competitive a merger with Morrison offers the best means of accelerating growth and delivering greater value for customers and shareholders." Morrison, which mainly operates stores in the north of England, said its shareholders would own 53 percent of the combined new group once the takeover is completed. The combined group would have sales of more than £12.6 billion with 598 stores and a market share of 16.2 percent. Morrison hopes to pay off Safeway's debt of £1.3 billion as soon as feasible, a spokeman for the company told CNN. The two supermarket chains said a merger would enable them to save "no less than" £250 million a year from the third full financial year. There had been reports in recent weeks that Asda (WMT) was talking to regulators about the possibility of a bid for Safeway. "This is a merger of defence," Justin Urquart-Stewart, fund managers at Seven Investment Management, told CNN. "Now Morrison won't say that but for Safeway it's a good deal because its been losing market share for sometime." Bob Stott, Morrison's joint managing director, said the company may have to sell some stores, leaving it with 600 outlets, to meet regulator approval. "This will have huge implications for the rest of the sector,'' Richard Hyman, at Verdict research consultancy, told Reuters "The others will be nervous and disappointed they couldn't benefit from any break-up of Safeway. Morrison will become a much more potent threat.'' Safeway shares rose 26 percent to 268.5 pence in mid-morning trading on Thursday after leaping more than 29 percent on the news. But Morrison dropped 10.1 percent to 189 pence. The fall in Morrison stock cut the value of its offer to £2.7 billion, but the firms' combined value climbed almost four percent to £5.7 billion, suggesting the market felt the deal would add value -- or that a rival offer could emerge, Reuters said. "The door is still ajar for the likes of Wal-Mart/Asda to come in with a cash offer if they so wished,'' Jeremy Batstone, head of research at Natwest Stockbrokers, told Reuters. Asda declined to comment but said it was watching events with interest.
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