Morrisons suitor baulks at paying an extra £400m

TALKS to get the US investment giant Apollo on board to finance a bid to buy Morrisons have cooled after a shock increase in the offer price earlier this month.

New York-based Apollo had been lined up to join a takeover consortium led by the private equity firm Fortress. But market sources this weekend said they believed Apollo had baulked at the dramatic £400 million price increase for the supermarket chain.

Fortress increased its offer from £6.3 billion to £6.7 billion nine days ago in a highly unusual pre-emptive strike to gazump its rival Clayton Dubilier & Rice, advised by former Tesco chief executive Sir Terry Leahy.

CD& R had apparently been scrambling to put together a counter offer before Fortress increased its price. It has until this Friday to respond to the raised offer after applying to the Takeover Panel for more time. CD&R is understood to still be working towards the possibility of a knockout counter bid – which would force Fortress back to the drawing board.

Fortress, which is owned by the Japanese investment company SoftBank, has joined forces with the Canada Pension Plan Investment Board and the Koch family – US billionaires known for their conservative activism. Singapore’s sovereign wealth fund, GIC, also joined the consortium late last month, providing the Fortress consortium with extra firepower.

It was not clear this weekend whether a deal with Apollo would be reached.

The fund giant had initially looked at making its own offer for Morrisons before it was revealed last month that it might join the Fortress consortium. Other sources said Apollo could yet join the bid.

In June, CD&R offered £5.5 billion for Morrisons, but this was flatly r efused by t he board, which includes two former colleagues of Leahy. Andy Higginson, former finance chief at Tesco, is chairman and Morrisons chief executive David Potts was once considered to be a possible successor to Leahy when the retailer- turned- investment adviser signalled his intention to leave the retailer in 2010.

Shareholders initially rounded on the decision to sell to Fortress at its opening price of £2.54 a share.

Investor JO Hambro called on suitors to pay £2.70 while M&G said the offer price did not reflect ‘the true value’ of the company.

Its largest shareholder Silchester – with a 15 per cent stake – had said it was ‘not inclined to support’ the lower price. It has so far not commented on the raised offer.