Outlook: Ken Morrison, aged 71, takes the biggest gamble of his life

Webster swansong; BP succession

Perhaps it's marrying a woman little more than half his age, but Sir Ken Morrison, 71, has plainly taken on a new lease of life. The City and the financial press had all but discounted him as a possible suitor for Safeway. Come to think of it, he had pretty much discounted himself.

No he wasn't interested in a big consolidating merger, he said at the time of the last results. He hadn't got the money to buy Safeway and was quite happy to sit on the sidelines and watch others slug it out for the weakling of the sector. He hadn't got to where he was today by doing deals; it was Northern hard graft that had made the company what it was ... and so on and so forth. There was no reason to disbelieve him. With some of the best operating ratios in the business, Sir Ken has got nothing left to prove. He's also of an age when most would have retired to the allotment to dig the potatoes. Why take the risk?

Well, for the first time ever, the grand old man of the groceries trade came to the City yesterday to explain his thinking to analysts and investors, and an impressively compelling account of himself he gave too. Combine Morrison's brand strength with Safeway's national portfolio and infrastructure, and a new national force in food retailing is born. That's not to underestimate the nature of the challenge. This is a big gamble for Sir Ken. The 14 per cent fall in his share price yesterday shows you just how big the City thinks the execution risk to be. Wm Morrison Supermarkets is a comparatively small, almost regional player, in a market dominated by giants.

It's plainly got something going for it, otherwise it wouldn't be so successful, but is it a formula that easily translates from Morrison's northern power base to Safeway's largely southern-based portfolio of stores? Will Morrison really be able to hack it with the big boys on a national scale? And has Sir Ken got the management skills necessary to achieve such a massive integration? They are all good questions, and maybe Sir Ken is indeed biting off more than he can chew.

On the other hand, Sir Ken had pretty much run out of road for organic growth and there was a real risk that he would be marginalised even further by an Asda/Sainsbury carve up of the Safeway portfolio. It's an open secret that the two were working on a joint bid six months ago. The only thing that stopped them was that they couldn't agree on the division of spoils. Asda, owned by the big daddy of global retailers, Wal-Mart, wanted the lion's share. Sir Peter Davis, chief executive of Sainsbury's, wasn't prepared to give it.

In any case, by entering the fray, Sir Ken has raised the competition bar faced by other potential suitors in the supermarkets sector even higher than it already is. There is virtually no geographic overlap between Morrison and Safeway, which means the deal is virtually guaranteed regulatory clearance. No other food retailer of size, except perhaps Marks & Spencer, is in the same position, and Marks & Spencer may be too busy with its home furnishings ambitions to be bothered with Safeway. All the others would have to break Safeway up to gain regulatory approval. Given the choice of the creation of a powerful fourth force in the supermarkets sector or a carve-up of Safeway between the top three, there's not much doubt which the competition authorities would opt for.

Strategically, then, Sir Ken is playing a pretty cute game. No one expected him to bid, and it may well be that by discounting him, Asda has missed its chance. There's been powerful evidence of a softening up exercise by Wal-Mart in recent weeks, not least the three part advertorial currently being run by the Financial Times.

Wal-Mart can reasonably claim to have delivered on its promise to bring rock bottom American prices to these shores, and it has long been attempting to sweet talk the regulators into allowing the payback of a consolidating merger between Asda and Safeway. The general assumption is that now Sir Ken has lighted the blue touch paper, Wal-Mart is bound to counter, leaving Safeway's shareholders facing the old dilemma between the certainty of Morrison's bid and the regulatory risk of a higher, cash offer from Asda. But don't count on it. Sir Ken's intervention makes it that much more difficult for Wal-Mart to obtain Government approval.

As for the execution risks, they are undoubtedly considerable. Even on Sir Ken's own calculation of cost savings and trading benefits, it is three years before the deal becomes earnings accretive. And while Wm Morrison is looking inwards as it grapples with the management challenge of the integration, everyone else will be looking outwards, making the trading environment more competitive still. Sainsbury's might look like the biggest loser from yesterday's deal, but at least it will be wholly focused on improving its retail offering in the years ahead. Sir Ken will have other things on his mind.

Yesterday's presentation was Sir Ken's first to analysts in the City, and according to him, it will also be his last. "The management of Morrison is based in Bradford", he asserted, "and like good wine, they don't travel". So why is he buying Safeway? Sir Ken will have to change if he is going to succeed. He knows that as well as any. But does he really want to?

Webster swansong

Whatever eventually happens to Safeway, for David Webster, the chairman, it's the end of a long road that began with the formation of Gulliver Associates as long ago as 1977. Sadly, Mr Webster is the only survivor of the original triumvirate behind Gulliver Associates. Both the others, Jimmy Gulliver and Alistair Grant, have since died.

Together, they cut quite a dash. Accessible, down to earth and ambitious, they were a striking contrast to the elderly stuffed shirts that then dominated the City and the higher echelons of British business, and they were to become one of the defining forces of 1980s corporate change. But for the fraudulent antics of Ernest Saunders, they would have won control of Distillers. Instead, they had to settle for Safeway, which they bought from KKR for £600m. To begin with, it proved a fabulous acquisition, but in recent years, it has lost the plot. Caught between the pincer movement of Tesco and Asda, it found itself more and more out-traded.

In the end, Mr Webster has secured a decent price for what's become a dog of a company, even if he's had to face the humiliation of being gobbled up by a smaller competitor. He can but reflect on how different it might have been had he not been cheated out of the great prize of Distillers. Still only 57, there's plenty of life left in Mr Webster yet. The Morrison takeover provides him with the honourable release from Safeway he has long craved. In a different guise, we can expect to be seeing plenty more of him in the years ahead.

BP succession

The race to succeed Lord Browne as chief executive of Britain's biggest company looks like being more of a marathon than a 100 yard dash. The three pretenders appointed to BP's board yesterday will have to wait five years to reach the top, unless Lord Browne falls under a bus first.

Such has been Lord Browne's domineering presence, there's no obvious successor as things stand. The Sun King has eclipsed all those around him. None of new board members is well-known in the City where the company has a lot of bridge-building to do following the disastrous handling of its ever-declining production growth forecasts.

Bereft of his most trusted prince, Rodney Chase, who retires as deputy chief executive in April, Lord Browne looks more alone than ever. Of the three new men, either John Manzoni, head of refining and marketing, or Tony Hayward, head of exploration and production, look most likely to succeed. Whether either is prepared to hang around as long as they may need to is an interesting question.

jeremy.warner@independent.co.uk