Morrisons board: We back Leahy takeover

Ex-Tesco chief’s US private equity giant knocks out rival after £660m pension pledge

THE Morrisons board has given the go-ahead for a historic takeover after a knockout bid by a US private equity giant advised by former Tesco boss Sir Terry Leahy.

It has emerged in documents that Leahy’s team sweetened the deal ahead of yesterday’s dramatic auction with a £660million property pledge to the company’s pension funds.

Clayton Dubilier & Rice made a winning £7 billion offer for Morrisons yesterday afternoon during the auction overseen by officials from the Takeover Panel, ending a 15week battle for control.

The £2.87 per share bid eclipsed a rival one by a group of private equity firms and billionaires by just 1p per share. The purchase is expected to be twothirds funded by debt – about twice the amount currently owed by Morrisons.

Recommending the bid last night, Morrisons chairman Andy Higginson said: ‘Today’s final offer from CD&R represents excellent value for shareholders while at the same time protecting the fundamental character of Morrisons for all stakeholders.

‘CD&R have good retail experience, a strong record of developing and growing the businesses in which they invest, and they share our vision and ambition for Morrisons. We remain confident that CD&R will be a responsible, thoughtful and careful owner of an important British grocery business.’

Shareholders will have the final say later this month, but are highly unlikely to block the offer which is the highest price the shares have reached for almost a decade. CD&R has agreed the deal with the Morrisons pension funds, secured against Morrisons property, after trustees voiced concerns that the debt-fuelled deal would ‘materially weaken’ the long-term financial health of the pension scheme.

It followed secret meetings between CD&R and the pension fund trustees last month and the eyewatering figure has since been released in documents relating to the bid. It also guarantees regular updates to trustees about the financial position of the supermarket and the strength of the covenant provided by the chain under its new owners.

CD&R outbid a consortium of investors backed by Japanese tech mogul Masayoshi Son and US property billionaire Charles

Koch. The mood in the Goldman Sachs top floor office, which Leahy and CD&R top brass had made their base for the day, was said to be ‘jubilant’ yesterday afternoon.

The sale will mean an end to 54 years on the London Stock Exchange, where the supermarket’s shares have been traded since it was listed by company patriarch Sir Ken Morrison, who took over in 1952.

It was founded by his father as an egg and butter stall in Bradford’s Rawson Market in 1899.

CD&R has made a raft of assurances to the Takeover Panel to help get the deal over the line, which includes keeping the Bradford head office. Despite concerns that a private equity buyer may plunder the chain’s property assets, valued at £5.8billion, CD&R has insisted Morrisons’ freehold ownership is a ‘particular strength of the business which has been carefully preserved over many years and will continue to be a cornerstone of Morrisons’.

It said in August it ‘does not intend to engage in any material store sale and leaseback transactions’. It cited other investments, including forecourts giant Motor Fuel Group, which it said maintained ‘high levels of real estate ownership’.

But senior retail sources said last night that a sale of some property for development or to lease back was ‘inevitable’. One boardroom-level retail source said: ‘There are ways of extracting value from the property – private equity is an arcane art.’ Five City sources spoken to by the MoS estimated that between £1billion and

£1.5 billion of property would need to be sold off for the investor to make a return that would be typical by private equity standards.

But CD&R said it planned to open more stores, grow the supermarket’s online business and sell more to wholesale customers, including convenience stores. Assurances given in statements will be valid for a year, but City sources said it was likely that Morrisons would be ‘morally’ held to account if any were broken.

The MoS revealed in July that CD&R was locked in a decadelong court battle over allegations that it ‘asset stripped’ another US company and left it ‘on the verge of bankruptcy’. The firm srongly refutes the claims. It is also likely the tax arrangements of CD&R will be scrutinised after it had lined up an entity in the Grand Cayman tax haven to run the supermarket giant.