Morrisons hit by £1.5bn loss after private equity buyout
MORRISONS has been haemorrhaging cash since falling into private equity hands two years ago, new documents reveal.
The beleaguered Bradfordbased grocer racked up £1.5bn of losses in the year after being bought by US firm Clayton, Dubilier and Rice (CD&R).
A Companies House filing from its parent company laid bare the pressure Morrisons has come under in the wake of the buyout, raising fears about the influence of overseas financiers on key British firms.
Morrisons was snapped up in October 2021 for £7bn by the private equity group in a debtfuelled deal spearheaded by former Tesco boss Sir Terry Leahy, an adviser to CD&R.
The takeover faced fierce opposition from MPs and senior City figures who warned it could be ruinous for the business and lead to higher prices for customers.
The deal saw £6.1bn of debt piled onto the grocer’s balance sheet, leaving it with huge interest payments and high exposure to increases in borrowing rates.
The year before being taken over, Morrisons was Britain’s fourth-biggest supermarket and reported a £201m annual profit.
But in the year to last October, Morrisons sank to the dramatic £1.5bn loss. Shore Capital retail analyst Clive Black said that it was a ‘very unfortunate outcome for CD&R’.
The loss was partly because of a £400m interest payment to service its debt pile, which Black said is ‘enormous’.
The grocer’s debt also left it less able to keep a lid on costs as the industry grapples with spiralling inflation. After the deal, Morrisons pushed up its prices faster than rivals, leading to an exodus of shoppers.
And in an embarrassing blow for Leahy, now chairman of the business, it lost its coveted spot in the so-called ‘Big Four’ of British grocers in September when it was overtaken by German discounter Aldi. Budget rival Lidl has also set out plans to overtake the business.
Black said that some of Morrisons’ troubles were caused by lengthy competition investigations into the takeover by CD&R and its £190m rescue deal for collapsed convenience store chain McColl’s.
But he added: ‘ In seeking to protect profit, CD&R allowed Morrisons’ prices to rise to the point shoppers started to notice, and it has lost more market share than is desirable.’
Speaking to the Daily Mail last year, former Morrisons director Paul Manduca said founder Sir Ken Morrison would be ‘rotating in his grave’.
Despite Morrisons losing shoppers, seeing sales slump and swinging to a loss, the supermarket’s bosses were still handed bumper pay packets.
Chief executive David Potts was among a group of ‘senior managers’ who split a £25m pot between them. Morrisons declined to clarify how many received the pay.
Bankers, lawyers and spin doctors have all also cashed in from the deal, with Morrisons admitting advisers were paid £95m for working on the transaction.
Black said there are ‘signs of improvement’ in Morrisons’ performance, with an increased focus on prices in recent months and potential benefits from the McColl’s tie-up. ‘But they clearly have a lot to do before it is a profitable business,’ he said.