The agreed bid of 289p a share, including 60p of cash, is the crowning UK merger of 2003 and a triumph for Morrison, which sparked off the industry-wide takeover battle by making a £2.9bn all-share bid in January.
Corporate finance enquiries are rising and investment bankers believe the UK — the fastest growing major economy in Europe — could spearhead a revival in M&A next year, provided the US economic recovery continues.
Morrison's success is also a coup for ABN Amro, which backed the right horse. The roughly £640m of cash in the offer will be financed with a £750m 18 month term loan and a £1bn five year revolver.
Yet the acquisition is barely leveraged. The compulsory sale of 53 Safeway stores should net the new Morrison £600m — enough to repay almost all the drawn term loan.
"The risk is in the equity, not the debt," said one loans banker in London. "From a banking perspective, they have bought the business for nothing."
The loans are expected to be priced at very fine margins for acquisition debt, of less than 50bp.
"Pricing below 50bp will raise some eyebrows," said one head of syndications in London. "But if it's a name that's been on your target list for years, are you going to do it? Of course you are."
Banks are eager to get involved in the deal, but it has been overshadowed in the loan market by ABN Amro and Wm Morrison's decision to clinch the deal without three banks that had previously offered support for the bid.
EuroWeek has learned that, from March onwards, when Morrison's bid was referred to the Competition Commission, ABN Amro had discussed raising extra debt with three lenders.
The Dutch bank, also Morrison's adviser, was concerned that rival bids from trade buyers such as Asda, Tesco or Sainsbury's, or a financial buyer such as KKR, could force Morrison to increase the cash element of its bid.
If that happened, ABN Amro calculated that it might need the back-up of some other big balance sheets to underwrite a multi-billion pound loan.
But in late September, the Competition Commission ruled that Morrison was the only UK supermarket chain it would permit to acquire Safeway.
And the big three supermarkets would not be allowed to buy any more of Safeway's 480 stores than the 53 that Morrison would be forced to sell.
This ruling also blocked the way to financial buyers, since one attractive exit route — buying the group and selling stores piecemeal — had been closed.
In this altered landscape, the need for extra debt receded — but the three banks still expected ABN Amro to involve them in any loan supporting Morrison's bid, according to a banker close to the deal.
However, in the negotiations leading up to Monday's agreement between the Morrison and Safeway boards, the bidder mandated ABN Amro as sole arranger and underwriter.
Bankers said the need to arrange finance for the bid in a hurry was a decisive factor.
Chairman Ken Morrison had threatened to walk away from the deal unless the Safeway board recommended his bid. The time pressure was intensified when the Takeover Panel set a deadline of December 29 for Morrison to make a bid.
Morrison and ABN decided not to involve the three other banks, but did not inform them until after the agreed bid had been made and the financing was in place.
"It's better to meet the deadline you have got and deal with the disappointment afterwards," said one loans banker in London.
But another banker thought this would have an impact on future transactions involving ABN Amro and the other banks. "The individuals involved will not forget it — there is a reciprocity issue," he said.
Both Morrison and ABN Amro have since been in contact with the other three banks. Market sources suggest they have been invited to participate in the deal — to be syndicated early next year — at a senior level.
One observer said there had been no falling out that might prevent the banks from working together: "ABN Amro did exactly what we would have done in that position."
The banker added that Morrison may have preferred one bank to provide the debt rather than several because of the sensitivity of the bid: "It's better for containing leakage — clients understand that."
Apart from this scuffle, the deal has excited many lending bankers with the prospect of forming a relationship with a group that, with a combined market share of about 15%, will be on a par with J Sainsbury, the UK's third largest supermarket chain.
Wm Morrison, which has an implied A- rating, is a rare visitor to the loan market. It last came in 1996, when house bank HSBC led a £185m five year revolver. HSBC advised Safeway during the sale process, so was prevented from financing the Morrison bid.
"Morrison do have relationships," said one banker, "but they have been net cash positive historically and therefore haven't used that many banks."
Another senior banker was more bullish. "Look at how much interest there was in the acquisition of Safeway — there were bank groups all over the place. It gives people a chance to establish relationships with a leading player in the sector and I expect it to fly out of the door."
Morrison will not have to pay a premium for raising new liquidity, or for obtaining an acquisition facility — the margin on the loan will be less than 50bp.
ABN Amro is expected to approach a small group of close relationship banks to sub-underwrite the deal. By February, ABN Amro had underwritten £2bn to support the acquisition.
