US private equity giant closes in on deal with rival to snatch Morrisons

US PRIVATE equity giant Apollo is closing in on an agreement to join forces with a group of foreign bidders for Morrisons supermarkets, tightening the consortium’s grip on the grocery chain.

Fortress, which is backed by Japanese investment giant Softbank, has teamed up with American businessman Charles Koch and the Canada Pension Plan Investment Board to agree a £6.3billion offer for the Bradford-based chain.

Talks to bring Apollo on board are ‘progressing’ towards a conclusion, putting immense pressure on rival bidder Clayton Dubilier & Rice to walk away or top the existing bid.

Sources said the chance of Apollo aligning with Fortress was now highly likely.

The agreed £2.52p-a-share bid is 42 per cent higher than the share price in June before private equity interest in Morrisons emerged. The offer also includes a commitment to pay a 2p a share dividend. Morrisons shares on Friday closed at £2.67.

City sources said Apollo joining the group would make it harder for rivals to swoop in with a higher offer and added that its expertise in global credit markets could reduce the cost of completing the bid.

Apollo said last week it was considering uniting with Fortress and its partners and was holding early stage discussions, but with no certainty of an agreement.

Sir Terry Leahy, the much vaunted former chief executive of Tesco and a former colleague of Morrisons chairman Andy Higginson and chief executive David Potts, is advising rival bidder CD&R. The Mail on Sunday reported last week that JP Morgan had emerged alongside Goldman Sachs advising CD&R. A third bank, BNP Paribas, was named days ago.

CD&R has until August 9 to make an offer – just a week before Morrisons shareholders are due to vote on the Fortress consortium bid.

CD&R would have to top the existing bid and most likely match or improve upon a string of assurances published on the London Stock Exchange to have any chance of support from the Morrisons board.

The assurances – which must be observed for 12 months after the completion of any deal – include maintaining the firm’s head office in Bradford, keeping existing agreements with suppliers and not weakening the chain by selling off chunks of its property for a quick profit and then renting them back.

One veteran City source said: ‘It’s difficult to see how bidders can go much higher than the current price without doing the very things Fortress has committed not to do – squeezing suppliers, flogging off the property.’

But another warned there may be considerable ‘wriggle room’ within the commitments.

One strategy would be to create a separate property company, still owned by an over-arching parent group but separate to the food retailing operating business. Once a separate division had been created, it would then be easier to strip out parts of the property portfolio over time or sell larger groups of store assets in the future under new owners, the sources said.

‘This is all about the dark arts of private equity where anything becomes possible and nothing is ever straightforward,’ said one source.

Morrisons shareholder JO Hambro has called for the chain’s suitors to raise their bid price to 270p a share, although it has already sold part of its shareholding for less than that price.

It is likely many of Morrisons existing shareholders would cave in at the existing price.

Interest in Morrisons follows a swoop on Asda last year by two little known businessmen, the Issa brothers, and their private equity backers TDR Capital.

It was reported last month that the new Asda owners sold its distribution network for £1.7 billion, sparking more speculation that private equity firms may look to strip out saleable assets from other supermarket chains. There has been speculation of a bid for Sainsbury’s, whose share price has surged 23 per cent in 2021.