Morrisons in Play
US private equity firm Clayton, Dubilier & Rice is expected to push ahead with its pursuit of Morrisons despite an initial offer at £5.5bn being rejected. Analysts believe the UK’s fourth largest supermarket chain could also attract bids from other companies, including Amazon.
It was revealed on 19 June that Morrisons had rejected a preliminary takeover bid worth just over £5.5bn from Clayton, Dubilier & Rice (CD&R). After the news broke, the Bradford-based retailer issued a statement saying the 230p a share cash offer “significantly undervalued” its business and future prospects.
Morrisons’ share price has fallen over the last year after its profits took a hit from additional costs related to operating during the pandemic. The group’s share price closed at 178.45 on Friday, valuing it at £4.3bn.
Deadline 17 July
Under the UK’s takeover rules, CD&R has until 17 July to make a firm offer or walk away. A report by the Financial Times quoting “people close to the transaction” said the private equity firm remains interested but plans to wait to evaluate investor reaction and signs of any political pushback before deciding on its next steps.
Among CD&R’s advisers is Sir Terry Leahy, the former Chief Executive of Tesco leaving the company with big losses in US, Asia, and East Europe
CD&R, a former owner of B&M, also controls forecourt operator Motor Fuel Group (MFG). Its 900-plus sites could potentially host Morrisons convenience stores if a deal goes through.
Analysts suggested that Morrisons could also face more overtures as its strong cashflow, and property assets make it an attractive target to private equity players. It owns the freehold for 85% of its 497 stores and operates 19 manufacturing sites that supply around one-quarter of what it sells.
Amazon maybe interested
Given its grocery delivery partnership with the supermarket, Amazon could also be drawn into making a bid. The online giant launched its first physical grocery stores in the UK earlier this year and easily has the funds to snap up Morrisons to accelerate its ambitions to grab a significant share of the market.
It is unlikely that another UK supermarket group would make a move for Morrisons, given that an attempted combination of Sainsbury’s and Asda was blocked by the competition regulator in 2019.
A potential bid battle could put other UK supermarkets in line for an offer. One analyst quoted by The Guardian said: “The whole industry is in play now. It’s not unrealistic to say that there could not be a single quoted British supermarket left in the foreseeable future.”
Profit pressures have also impacted Tesco’s share price with the business currently valued at £17bn. Meanwhile, Daniel Kretinsky, the Czech billionaire whose retail investments include France’s Casino and Germany’s Metro, recently raised his stake in Sainsbury’s to 10%, sparking speculation that it could be targeted in a deal to take it private.
Meanwhile, The Times reports today that Morrisons’ board recognizes that the retailer is now “in play”. However, as well as an attractive price, it is expected to want commitments and assurances from any bidder on the future of its workforce, manufacturing, and pensions.
Morrisons’ shares have been trading sideways at about 180p for much of the last 18 months. “There are plenty of bears out there who think that there is too much capacity in the supermarket business, given the growth of Aldi and Lidl and the growth of online shopping, and that somebody like Morrisons will be squeezed.”
The Competition And Markets Authority (CMA) will have a say
The CMA would be expected to look into any takeover were the supermarket chain to accept a takeover offer. Not least after a group of Labour MPs warned that a private equity takeover of the retailer could threaten the future of thousands of jobs and risk the potential for asset-stripping.
Farmers have urged any new owner of Morrisons to continue to support them if the supermarket changes hands after the £5.5 billion private equity bid for the grocer. As rumors grew about a feeding frenzy among potential suitors and their intentions for the business, the National Farmers Union (NFU) said it would “keep a close eye on any potential future purchase of Morrisons” and would scrutinize the impact on farmers.
The NFU said: “Morrisons is a significant supporter of British farming, and we would like to see this continue under any new ownership.”
The supermarket chain is one of the largest pork processors in the United Kingdom.
Morrisons has significant ownership of parts of its supply chain and a large property portfolio which would appeal to possible buyers.
Sources: Kamcity, Reuters, Financial Times, The Guardian, Retail Gazette.