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When the stock market opens at 8 a.m. on Monday, all eyes will be on Morrisons’ stock price as City insiders assess the likelihood of a bidding war for the suddenly demanded supermarket chain.
Over the weekend, executives from at least three groups reportedly frantically zoomed in on financiers, as the battle to buy the Bradford-based supermarket chain escalated.
On Saturday, the management of Morrisons, which operates 500 stores and employs more than 1,100 people in the UK, announced that it had accepted a takeover bid by a fund group led by Fortress, owner of Majestic Wine.
The deal, which came after months of secret talks, valued Morrisons shares at £ 6.3bn, though funds are also running into debt at £ 3.2bn.
Fortress made four proposals before its successful bid reached a total value of 252p per share, as well as a 2p cash dividend, compared to the retailer’s closing Friday share price of 240p.
Recommending the offer to shareholders, Andrew Higginson, Chairman of Morrisons, said: “Morrisons directors believe that the offer represents a fair and recommendable price to shareholders, which recognizes Morrisons’ future prospects.
But hours after the announcement, it emerged that another US private equity player, Apollo Global Management, had hired Morgan Stanley to mount its own takeover bid.
The approved Fortress deal announced on Saturday was the second firm offer for Morrisons, eclipsing the £ 5.5bn offer from US private equity firm Clayton, Dubilier & Rice (CD&R), which Morrisons directors have rejected on June 19, claiming it “was far too low”.
Despite all interested parties being silent on Sunday, CD&R, which has former Tesco boss Sir Terry Leahy as senior adviser, said by insiders they had “a lot more gas in the tank”. He believes some Morrisons board members would be more inclined to an increased supply. Under UK stock market rules, the rival US investment firm has until July 17 to make a firm offer or exit.
This raises the prospect of a three-way battle for the company which until recently was seen as largely unloved by investors, although it remains to be seen whether other interested groups will overtake the Fortress-led bid. .
Supermarkets have appeared vulnerable to private bidders in recent months after falling stock prices due to rising costs of handling the Covid crisis, which negated the benefits of booming sales during shutdowns.
Morrisons is considered attractive because it owns full ownership of around 85% of its properties – including its supermarkets – and for its integrated business approach. It maintains long-term relationships with its farmers and suppliers as well as its own feed manufacturing sites and even its own fishing fleet.
Andrew Gwynn, equity analyst at financial firm Exane, said he believes the Fortress-led bid has a good chance.
“Fortress doesn’t appear to be proposing aggressive change, the focus is simply on empowering the leadership team to achieve their long-term strategy. The agreement is conditional on the approval of 75% of the shareholders. We believe it should be achievable in this price range. The deal is very likely to succeed, ”he said.
However, shareholders, who have yet to approve the takeover, could lose their minds if another party makes a significantly higher bid.
Institutional investor JO Hambro, who owns 3% of the supermarket, said Morrisons board was correct in rejecting CD & R’s initial offer, but indicated it could support a deal at a higher price. Student. “We believe that any offer for the group approaching 270 pence a share deserves commitment and consideration,” he said last week. Before the interest in the offer, Morrisons was trading at around 178 pence a share, valuing the company at around £ 4.3 billion.
Meanwhile, farmer groups and unions have sounded the alarm bells, fearing the recovery could be bad news for their members. Morrisons describes himself as ‘UK agriculture’s biggest customer’ and works directly with over 2,200 breeders and 200 breeders, some of whom have supplied the company for over 30 years.
Workers’ union Unite said it wanted “unbreakable guarantees” on jobs and terms or that it would not cooperate with any sales.
Unite’s national road transport manager Adrian Jones, who represents Morrisons warehouse and distribution workers, said the company was “unique among UK supermarkets” because it owns its supply chain, unlike other supermarkets that are more dependent on third-party wholesalers.
Shadow Minister of Labor Seema Malhotra said the government needs to take a close look at the takeover bid and called on ministers to work with the consortium to ensure that “crucial commitments to protect the workforce and the pension scheme are legally binding and respected “.
If the deal goes through, the offer for the UK’s fourth-largest supermarket would be the biggest private equity deal since Boots bought out in 2007 for £ 11bn. Saga, AA and RAC are some of the big brands that have fallen into their hands. private equity buyers in recent years.
It follows the takeover of Asda, backed by the private equity group TDR Capital and led by the Issa brothers.
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