Bidding war looms as Morrisons throws out £5.5bn cash proposal
THE prospect of a bidding war for Wm Morrison has been raised after the supermarket giant rejected a takeover approach from a Us-based private equity player, sending its shares soaring by nearly 30 per cent.
Morrisons, the UK’S fourth-biggest supermarket chain, threw out a proposed cash offer of 230p per share from Clayton, Dubilier & Rice (CD&R), which previously invested in household goods retailer B&M. The proposal, a 29% premium to the grocer’s closing price of 178.45p on Friday, valued the chain at more than £5.5 billion.
The grocer, which owns nearly 500 stores and employs around 120,000 people in the UK, rebuffed the “unsolicited, highly conditional” offer from CD&R, declaring that it “significantly undervalued Morrisons and its future prospects”.
However, analysts signalled the approach could kick-start an auction for the “big four” player, with online retail giant Amazon mentioned as a possible suitor. Amazon already sells Morrisons’ groceries on its massive e-commerce platform.
Analysts cited Morrisons’ flagging share price as being attractive to private equity bidders, while also highlighting the strength of its property portfolio. Morrisons is understood to own the freehold of around 85% of its 497 stores. That there is perceived to be room to further grow the retailer’s online offering – Morrisons has been criticised in recent years for its slow progress in this area – is believed to be another key aspect of its attraction. Morrisons also has a wholesale deal to supply Mccolls convenience stores.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, told The Herald: “It’s being eyed up for takeover because although the grocer has been bounding ahead with digital sales, which were up by 113% last quarter, its online business is smaller than its rivals which leaves more room for exceptional growth.
“The fact that Morrisons owns much of its store estate is also attractive to potential bidders who may see that as an area to cut short-term costs through sale, then leasing deals. Despite the surge in online sales and the development of its tie-up with Amazon, its share price had also been pretty flat and it had dropped out of the FTSE 100 at the spring re-shuffle, so with potential surrounding the company, its share price looks attractive.”
The approach for Morrisons from CD&R comes shortly after forecourt operators the Issa brothers saw their £6.8 billion, private equity-backed takeover for Asda approved by the competition watchdog. A proposed merger of Asda and Sainsbury’s was blocked by the Competition and Markets Authority in 2019.
Russ Mould, investment director at AJ Bell, suggested the Asda deal has sparked new interest in UK grocers as prospective targets. He said: “Historically the UK supermarket sector has been viewed as a slow growth, highly competitive market. As such, it wasn’t seen as a natural source of takeover activity.
“Mergers were more plausible, such as we saw with Sainsbury’s trying to marry Asda to gain scale and find a new source of earnings growth. But non-trade buyers swooping for deals didn’t seem like an obvious play until we saw the Issa brothers snap up Asda after the Sainsbury’s deal collapsed.”
Under UK takeover rules, CD&R now has until 5pm on July 17 to announce its firm intention to make an offer for Morrisons.
Morrisons said: “The board of Morrisons evaluated the conditional proposal together with its financial adviser, Rothschild & Co, and unanimously concluded that the conditional proposal significantly undervalued Morrisons and its future prospects. Accordingly, the board rejected the conditional proposal on 17 June 2021.”
Shares closed up 27.9% at 228.21p.