Second Morrisons investor rejects Fortress
It is impossible to put a positive spin on it – the takeover blunder at the grocer is one of Britain’s great boardroom missteps
THE US private equity firm seeking to take over Morrisons was left fighting a rearguard action last night after a second shareholder came out against its £9.5bn bid.
Fortress is scrambling to get back on the front foot after top ten investor JO Hambro said that its 254p-a-share offer was too low. The intervention came a day after Morrisons’ biggest shareholder Silchester said it was opposed to the deal.
Bosses at Fortress have now signed up Singapore’s sovereign wealth fund
GIC to join their takeover consortium and is on the brink of agreeing a similar deal with rival buyout titan Apollo Global, in a move likely to fuel speculation that it will increase its offer.
City sources said that talks between Apollo and the Fortress-led group are in their final stages, but cautioned terms were still being agreed and a partnership could fall through.
It is understood that GIC and Apollo both held preliminary discussions with rival private equity firm Clayton Dubilier & Rice (CD&R), which lodged a rival bid for Morrisons in June before it was rebuffed by the board. CD&R, which is understood to be lining up former Tesco boss Sir Terry Leahy to become Morrisons chairman, is now in talks with lenders for a counterbid. The firm has until Aug 9 to make its intentions clear under City takeover rules.
Fortress is already backed by a Canadian pension fund and the real estate arm of US oil billionaire Charles Koch, with debt underwritten by HSBC and the Royal Bank of Canada. Its swoop for Morrisons has won the support of the supermarket’s board. Shares closed flat at 266p, valuing the grocer at £6.45bn.
The intervention of the reclusive asset manager Silchester is a decisive moment in the tense Morrisons takeover battle. With more than 15pc of the company’s shares, the Mayfair-based fund is the kingmaker in one of the most contentious deals the City has witnessed in a long time.
So, Silchester’s rejection of a £6.3bn buyout attempt led by Wall Street outfit Fortress is devastating for a supine board that had rushed to recommend it to investors. In its current form, that approach is now as good as dead.
It is telling that not a single Morrisons shareholder has publicly declared its backing. With L&G and Jo Hambro – powerful City institutions and both top ten holders – also speaking out against the bid further opposition seems likely, making it extremely hard for Fortress to clinch the support of 75pc of shareholders that is needed.
Silchester’s broadside is the worst possible scenario for chairman Andrew Higginson. The board was far too quick to reject a rival offer from private equity firm Clayton Dubilier and Rice (CD&R) fronted by former Tesco boss Sir Terry Leahy, and declare their support for the Fortress-led consortium instead.
In takeover situations, the phrase “fiduciary duty” is banded about too easily by directors seeking to justify the adoption of a soft stance. If Higginson and senior colleagues are determined to sell Britain’s fourth biggest supermarket chain, then investors would have been much better served through a bidding war.
CD&R has not been scared off but in embracing the Fortress consortium so quickly, and agreeing to a short six-week deal timetable, it makes it more difficult for competing bids to emerge, one of the points that Silchester makes in a wide-ranging and damning rebuke.
The suspicion is that the board’s decision was influenced as much by a desire to avoid being reunited with Leahy as the supposed attractions of being owned by Fortress. Higginson, chief executive David Potts and operating chief Trevor Strain all worked under him at Tesco, and Morrisons insiders claim that there is some boardroom tension over the influence that the former supermarket supremo could wield.
Fortress’s backing for Potts and his team is also a key factor. Morrisons’s executives stand to pocket £35m from any takeover but there is the potential for even greater riches under a new private equity owner. There has been no such blessing from CD&R.
Silchester isn’t just critical of the ticket price. It is utterly damning of the entire rationale for the bid. Essentially what it is saying is that Morrisons doesn’t need to be sold at all. The humiliation will be complete if Silchester’s position creates the auction that the board’s ineptitude threatened to scupper. The door is now wide open for Leahy to gatecrash the party, while Fortress looks to be preparing an improved approach having welcomed Singaporean sovereign wealth fund GIC into the fold.
There is no way for Morrisons directors to put a positive spin on events. Corporate Britain has served up some spectacular boardroom failures in recent years. The collapse of merger talks between Morrisons’ great rivals Sainsbury’s and Asda is one. Unilever’s U-turn on shifting its headquarters to the Netherlands is another. The Morrisons takeover blunder can be added to the list.
‘Silchester isn’t just critical of the price. It is damning of the entire rationale’
Robot-owned patents don’t stack up
Do androids dream of electric sheep? Apparently not. The artificial intelligence created by Imagination Engines, a Missouri-based specialist in “conscious computing”, has spent its time dreaming up a more advanced form of Tupperware that is easier for robots to stack.
This may not seem an Earth-shattering breakthrough. The novelty is that Dabus, the computer program in question, is the first nonhuman to be granted a patent for its invention.
British and American intellectual property authorities had refused, so Imagination Engines turned to South Africa. The award has been reported as a triumph for Ryan Abbott, a professor at the University of Surrey who has written and campaigned for the law to be changed so as not to “discriminate” against artificial intelligence. In a sense, he has succeeded where the animal rights hardliners of Peta – who campaigned for the copyright of a “selfie” of a grinning macaque to be assigned to the monkey itself – failed.
However, before we write off humanity as the leading inventive force in the universe, we should consider that on the international patent scene South Africa is known as a “non-examining country”. That means it does not investigate the novelty or inventive merit of applications and we only have Dabus’s word that its food containers are genuinely original.
More discerning patent offices are therefore right to resist the rise of the robots. Any human inventor who believes Dabus has ripped off their invention would have nobody to hold to account. That would undermine a foundation stone of the economy: that risk taking can pay off.
Abbott wants the opposite. He claims rights for artificial intelligence would unleash an explosion of innovation, not because there is strong evidence of creativity but because it would protect the human developers of such systems from potentially costly lawsuits. That would be a disastrous state of affairs. Property rights are human rights and should not be sacrificed on the altar of an imaginary technological utopia.