No sooner has one big deal sent shockwaves through the food and drink sector than people start looking for the next one.
Earlier today analysts at Bank of America Merrill Lynch speculated that Tesco’s £3.7bn swoop for Booker could spark Sainsbury’s into a move for Morrisons or even Asda as a response.
Of course, there is some sense in the idea that with Tesco strengthening its hand, then its traditional rivals will have to react.
But for me it won’t be this deal, and that theory also doesn’t reflect the fact that Sainsbury’s and Morrisons have both made some major strategic moves in the last year or so that are likely to remain their key focus for the foreseeable future.
Merrill Lynch says that the geographical fit of Sainsbury’s, which is skewed towards the South East, and the mostly northern Morrisons could make a deal attractive.
But I think this is way too simplistic. There is still an awful lot of overlap between the two estates and the Competition & Markets Authority would have a field day deciding which stores would have to be sold off to allow the deal to go through. The only certainty is that it would be a lot. And if it was Sainsbury’s driving the deal, what would it be left with? Lots more supermarkets, many of which are smaller than its preferred model.
It just doesn’t compute that Sainsbury’s would want this right now at a time when all of the big four are retrenching.
Sainsbury’s recent takeover of Argos owner Home Retail Group, remains its big play and makes far more sense than simply buying lots more supermarkets.
Growing partnership with Amazon
Equally, Morrisons is looking at pressing ahead with its capital-light wholesale strategy. Its growing partnership with Amazon is the most eyecatching element of this, but its recent plans involving partnering with forecourt operator Rontec and the development of the Safeway brand for the independent sector are just as important. They show that, like Tesco, Morrisons has identified the convenience and independent market as the next major battleground and is already launching its attack.
In fact Morrisons has been eyeing this sector for at least five years, with attempts at buying not just Nisa but also Costcutter. It is understood not to have pressed ahead with either of these bids over concerns surrounding the complexity of ownership and supply in these businesses.
As a listed company Booker will be easier to integrate than, say, Nisa, which is a mutual owned by hundreds of different retailers, but Tesco will no doubt still face plenty of challenges along the way.
The fact that Tesco and Booker had been talking for around a year shows that these deals are the exception rather than the rule, and it is very unlikely that its rivals will be spooked into kneejerk M&A activity.
Of course, talks on that next big deal might already have been happening for months. After Tesco-Booker, very little would surprise me. But Sainsbury’s-Morrisons really would.
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