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A group led by US-based Fortress Investment has agreed to buy Morrisons, the UK’s fourth-largest supermarket chain, for £ 6.3bn ($ 8.7bn) as the foreign investors are looking for good deals in a market battered by Brexit and the pandemic.
The deal comes just a month after Morrisons rejected a £ 5.5 billion offer from New York-based Clayton, Dubilier & Rice, saying the offer undervalued the company.
The Fortress-led group has agreed to pay 254 pence a share for Morrisons, which is 42% more than the value of the shares before Clayton Dubilier’s offer, Morrisons said on Saturday. The group also includes the Canada Pension Plan Investment Board and Koch Real Estate Investments.
British assets are relatively cheap after uncertainty surrounding Britain’s departure from the European Union and widespread COVID-19 restrictions weighed on stock prices. The UK benchmark FTSE 100 Index has fallen 7.3% since the start of last year, compared to a 26% gain for the S&P 500.
Grocery stores are also rushing to adjust to the transition to online shopping, as many consumers have switched to home delivery to avoid face-to-face contact during the pandemic. Almost 29% of all retail spending was online in May, up from 19.9% in February 2020, according to government statistics.
“This signals the biggest upheaval in the UK grocery industry in over a decade …” said Richard Lim, CEO of independent consultancy Retail Economics, of the Morrisons deal. “The shift to online grocery shopping, the growth of rapid delivery, and the intersection with the take-out market present lucrative opportunities if the ownership transition goes smoothly. “
Private equity investors like Fortress typically acquire undervalued companies and then look for ways to cut costs and increase profits before selling them for a profit.
Morrisons said Fortress intended the company to remain a stand-alone operation led by its current management.
Employees’ jobs and retirement rights will be protected, and Fortress is backing a recent move to pay at least £ 10 an hour to all of its staff, Morrisons said.
“We have taken a very careful look at Fortress’s approach, its plans for the business and its overall suitability as the owner of a unique UK food maker and trader …” said Andrew Higginson, president of Morrisons. “It is clear to us that Fortress has a full understanding and appreciation of the fundamental character of Morrisons.
Morrisons, which employs around 110,000 people, operates 497 stores and 339 service stations across the UK
Seema Malhotra, opposition Labor Party spokesperson on trade and consumer issues, said the takeover must be closely watched by the government, given the essential services provided by supermarkets.
She also called for binding commitments to protect workers and suppliers.
“Ministers must urgently work with Morrisons and the consortium to ensure that critical commitments to protect the workforce and the pension plan are legally binding and honored,” said Malhotra. “Ministers must also ensure that legal promises are made regarding the integrity and future of the company, including any impact on the supply chain and distribution centers.”
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