Why sell to shoddy suitors?
BID battles are meat and drink to City bankers, lawyers and PRs: all the excitement of a contest, plus mouth-watering fees all round. For managers of the target company, there is the prospect of a life-changing windfall as their incentive schemes pay out, and possibly a well-paid position under a new owner. Shareholders can sell out at a premium.
It’s easy for everyone to get so carried away that the interests of staff, pensioners and the nation are forgotten. the long-term investment perspective is ditched.
the sparring by private equity predators over supermarket group Morrisons fits this template. Later today is the deadline for Clayton Dubilier & Rice to make a new offer after its first overture was rejected. But the takeover Panel is likely to allow an extension, probably to August 20, in the interests of shareholders to flush out a higher bid.
Rival bidder Fortress has muscled in ahead, increasing its previous price last Friday. Both Fortress offers have been recommended by the Morrisons board.
this begs the question of why the directors seem so keen to roll over. Why were they prepared to sell out so cheaply, when it was obvious higher bids were in the offing? What does that say about their understanding of the value of the company they run? If shareholders send the bidders packing, Morrisons’ board will be left in a deeply uncomfortable position.
Silchester, the biggest shareholder, has already castigated the directors for not allowing more time for competing offers. How right it was. Neither bidder looks particularly fabulous as an owner for such an important business. Fortress, with an eye to the concerns advanced over jobs, food security and the supply chain, has put forth a string of warm words about how seriously it would take its wider social responsibilities.
Read carefully, though, and there is plenty of wriggle room in the flannel about preserving Sir Ken Morrison’s legacy. And Fortress is an offshoot of SoftBank, which has form in the UK, having bought tech firm Arm in 2016. Now it is attempting to flog Arm to Nvidia of the US, having already sold off a Chinese subsidiary to Beijing.
CD&R can argue it has operational expertise in the form of Sir terry Leahy, the former tesco boss, who is an adviser and would probably be made chairman. It has done well with discounter B&M, where Leahy was also chairman, and is a rare private equity success story,
the Competition and Markets Authority could intervene on a CD&R bid, since it owns petrol stations which could overlap with Morrisons’ forecourts. However, it has no powers to step in on Fortress.
Shareholders hold the fate of the company in their hands. Morrisons’ future should not be framed as a choice between competing undesirable owners. the supermarket group has a viable independent future. the swoop by private equity should act as a spur to work harder to achieve it. one does have to question whether the current top team are the right people to do so.
Independent directors should have looked at the M&S playbook at the time of the 2004 Philip Green bid, parachuting in Stuart Rose and Paul Myners for a fightback.
the suspicion is that what the dissenting shareholders are really concerned about is price. that would be a shame. Morrisons need not be an inglorious surrender.
If the board and big investors only grew a backbone, it could mark the point at which the tide turns against the forces of greed, short-termism and vulture capitalism.