Morrisons plots sale of food production arm as costs bite

THE private equity owner of Morrisons is planning to sell properties used by the grocer’s food production arm as rising inflation squeezes the supermarket industry.

Clayton Dubilier & Rice (CD&R), which this month won regulatory approval for its £9.8bn takeover of Morrisons, is reportedly seeking offers for the company’s warehouses, food factories and fisheries, which would be sold and then leased back. It is thought the portfolio could fetch more than £600m, according to The Sunday Times.

The move comes after Morrisons warned in April that rising costs and falling consumer spending were expected to squeeze profits.

In a further blow, figures from Kantar last month showed the grocer’s market share had fallen to 9.5pc – down from 10pc a year ago – as discounter rivals Aldi and Lidl gained ground.

Clive Black, a retail analyst at Shore Capital, said the pressure on Morrisons’ bottom line, as well as rising interest rates, was likely to put pressure on CD&R to sell more assets and reduce the supermarket’s exposure to debt.

The private equity firm committed to putting up about £3.4bn in equity for its takeover but the rest is being financed by borrowing.

Mr Black said: “Market conditions are very challenging at the moment and CD&R would not have been expecting that when they were putting together the deal last year.

“That is absolutely going to increase the need to think strategically about the balance sheet and I imagine they will be looking to deleverage.

“Frankly, it just shows how much can change in a year.”

Another question that remains unanswered so far was whether CD&R will seek to sell the Morrisons food manufacturing business itself, rather than just the underlying properties, he added.

There is also speculation that the added pressure could lead to a greater selloff of store premises than expected.

Morrisons owns the vast majority of its shops outright but CD&R made binding commitments not to engage in a “material” number of sale and leaseback deals for at least a year after the tieup completed. No such commitments were made for the food manufacturing business or its properties.

CD&R won an auction battle for Morrisons in October, seeing off a rival consortium led by Softbank-owned Fortress Investment Group.

This month Britain’s Competition and Markets Authority said it was “minded” to approve the deal on condition that CD&R sell 87 petrol forecourts that it separately owns through Motor Fuel Group.

Morrisons did not comment.