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Northern lights flicker at post-merger Morrison

By Camilla Palladino


www.breakingviews.com

Remember the old saw about a hotshot manager taking on a company with a poor reputation? It's generally the company that emerges from the experience with its reputation intact. That, in short, is the worry about Wm Morrison's takeover of Safeway.

Investors love Sir Ken Morrison and what the septuagenarian boss has achieved at the north of England based supermarket chain. Before it bought Safeway, Morrison had industry-leading like-for-like growth and margins, in spite of its relatively small size. But they worry he won't be able to replicate his success with tired old Safeway.

This has been an issue ever since the takeover – mainly because it was such a huge mouthful for Morrison. And the alarm bells have been ringing loudly

following Morrison's warning in July that Safeway's sales had fallen sharply since the deal went through.

It was never going to be easy for Morrison to make juicy returns from Safeway. But what hope it had of doing so hinged on its ability to increase the target's sales per square foot, from about £16 a week to Morrison's own £20 a week in big stores, by a mixture of rebranding and cutting prices.

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