SHARES in Wm Morrison dropped by nearly four per cent after the winning takeover bid for the grocer from private equity outfit Clayton, Dubilier and Rice came in lower than hoped.
New York-based CD&R overcame a consortium led by fellow US private equity player Fortress in an auction for the “big four” supermarket company on Saturday. It brings to an end a takeover tussle that began in June.
It also marks a major inflection point in the history of Morrisons, which was formed as an egg and butter stall in Bradford in 1889 and listed on the stock market in 1967, following the opening of its first supermarket in its hometown six years previously.
The CD&R bid, which has been unanimously recommended by the Morrisons board, values the grocer at £7.1 billion, or 287p per share, beating the final Fortress offer of 286p.
The fall in Morrisons’ share price by 11.1p to 285.9p yesterday signalled that investors had hoped the auction would produce a higher bid.
Nonetheless, Morrisons said the final CD&R offer represented a premium of approximately 61% to the closing price of 178p per share before the start of the offer period.
Attention is now likely to fall on the future of J Sainsbury, which has also been linked with interest from private equity players. Shares in Sainsbury’s closed up 3.4% at 294.1p yesterday.
Asda was sold by WalMart to petrol forecourt operators Zuber and Mohsin Issa in a private equity backed deal worth £6.8bn earlier this year.
Having lost out on Morrisons, Joshua A Pack, managing partner of Fortress, said that the “UK remains a very attractive investment environment from many perspectives and we will continue to explore opportunities to help strong management teams grow their businesses and create long-term value.”
Sophie Lund-Yates, equity analyst at stockbroker Hargreaves Lansdown, said: “While this takeover story might be wrapping up soon, that doesn’t mean we won’t see others.
“Fortress are clearly interested in what the UK has to offer, and a boom in private equity activity in London this year means they won’t be the only ones. A weak pound and low interest rates mean UK companies could look more enticing now than they have in a while, and further offers for UK businesses can’t be ruled out.”
Fears have been expressed for jobs and pensions since the bidding war for Morrisons between CD&R and Fortress first erupted. There has also been speculation its acquisition by a private equity owner may lead to the sale of its largely freehold estate. Morrisons has 497 stores in the UK, the majority of which are owned by the company outright
But Morrisons’ chairman Andrew Higginson said CD&R would be a “responsible, thoughtful and careful” owner.
CD&R, which has been advised on its bid by former Tesco chief executive Terry Leah, said its previously stated intentions regarding the business were unchanged.
In its scheme document, CD&R said Morrisons’ 110,000-plus members of staff “are the heart of the business and are core to driving the differentiated customer experience that helps define the Morrisons proposition”. It adds that following the deal becoming effective, “the existing contractual and statutory employment rights, including existing pension rights of all Morrisons’ management team and employees of Morrisons, will be fully safeguarded.”
CD&R also says in the document that the freehold ownership of Morrisons’ stores “will continue to be a cornerstone of Morrisons.”
“Bidco does not intend to engage in any material store sale and leaseback transactions,” the documents adds.
The current management team of Morrisons, headed by chief executive David Potts, will remain in place. Mr Potts previously worked under Mr Leah at Tesco. Morrisons will continue to be headquartered in Bradford, and run as a standalone business.
Ms Lund-Yates said the price offered by CD&R “sounds steep, but is a reflection of the significant growth opportunities ahead.”
“In particular, the supply and delivery partnerships with Amazon will have caught the attention of potential buyers,” she added.