Morrisons takeover: who wants to buy the supermarket and why?

Morrisons accepted a £ 6.3bn takeover offer over the weekend, but interest from two other investment firms means the UK supermarket could be poised for a dramatic bidding war.

Morrisons shares hit a three-year high on Monday morning after investors digested all interest in the takeovers.

Last month, the group rejected an initial approach to buy out £ 5.5 billion from New York-based private equity firm Clayton, Dubilier & Rice (CD&R).

But on Saturday Morrisons said it had accepted an offer from a consortium led by PE rival Fortress.

He confirmed two days later that his colleague Apollo Global Management also threw her hat in the ring, although she has yet to make an official offer.

UK supermarkets have been bolstered by the pandemic over the past year, with sales boosted by the closure of non-essential stores and hotel businesses.

Nonetheless, Morrisons was among the grocers to post lower annual profits after being hit by high pandemic costs.

That wasn’t enough to deter potential bidders, and analysts predicted the standoff could break out.

The PA news agency answers key questions about Morrisons’ potential takeover here:

– Who currently owns and runs Morrisons?

The Bradford-based retailer was founded by William Morrison in 1899 as an egg and butter stand at Rawson Market.

Morrisons gradually grew and became a publicly traded company under the leadership of Ken Morrison in 1967, listed on the London Stock Exchange.

It expanded further in 2004 with the £ 3.3 billion acquisition of rival Safeway, which helped develop the north-focused retailer further south.

The group has remained public since 1967, with the company now largely owned by a series of institutional shareholders, including Silchester International, Columbia, Blackrock and Schroders.

General Manager David Potts has led Morrisons for the past six years (Mikael Buck / Morrisons / PA)

Morrisons has been led by Managing Director David Potts since 2015, alongside COO Trevor Strain and CFO Michael Gleeson.

Mr Potts would be vying for a salary of around £ 19million if the 254 pence per share transfer was completed and all of his share interest paid.

The company’s board of directors supported the Fortress-led consortium’s offer and said it believed it would “support and accelerate our plans to develop and strengthen Morrisons” if the acquisition goes through.

– Who agreed to buy Morrisons?

A consortium led by Fortress, owned by Softbank, is currently in the driver’s seat to buy the supermarket after making the first firm offer and seeing directors of FTSE 250 support the decision.

The investor group pursuing the acquisition also includes the Canada Pension Plan Investment Board and Koch Real Estate Investments, the vehicle of US billionaire Charles Koch.

Fortress – which was acquired by Japanese bank Softbank for US $ 3.3 billion (£ 2.4 billion) in 2017 – has already invested in grocery retailing in North America and Europe.

Majestic wine
Fortress bought wine retailer Majestic in 2019 for £ 95million (Ian West / PA)

In 2019, the private equity firm bought UK wine retailer Majestic Wines for around £ 95million.

Fortress said she canceled planned layoffs at Majestic after buying the company and would look to invest in Morrisons.

– Who are the other potential bidders?

New York-based private equity firm Clayton, Dubilier & Rice made a move on June 17 for Morrisons to expand its retail presence in Europe.

The 43-year-old is one of the industry’s most established investors and has been advised by former Tesco chief Sir Terry Leahy for the past 10 years.

Sir Terry, who was heavily involved in his approach for Morrisons, helped CD&R secure a 60% stake in discount retail group B&M in 2013.

CD&R also owns forecourt giant Motor Fuel Group (MFG), sparking speculation it could strike a deal similar to the acquisition of Asda by EG Group founders, the Issa brothers, and private donors, TDR Capital.

The company now has until July 17 to make a formal offer to buy Morrisons, due to UK takeover rules.

New York PE’s Apollo company on Monday became the third company to reveal interest in a possible deal.

The asset manager has confirmed that he is “in the preliminary stages of evaluating a possible offer for Morrisons” on behalf of the investment companies managed by Apollo, but has not yet filed a formal offer .

Apollo was launched in 1990 and has grown to encompass 15 global offices with approximately US $ 455 billion (£ 328 billion) in assets at the end of last year.

Apollo was involved in a bidding process for a large UK supermarket last year as he tried to take over Asda.

However, the third largest grocer in the UK was eventually taken over by brothers Issa and TDR.

– Why Morrisons and what are the potential plans for the business?

Morrisons appears to be an attractive opportunity for private equity, as its stock value had recently remained below pre-pandemic levels despite strong recent earnings.

Low margins and rising costs continued to weigh on valuations in the supermarket sector, fueling regular speculation about potential buyouts.

Nonetheless, Morrisons has a significant portion of its supply chain and a large real estate portfolio that will appeal to potential buyers.

Neil Wilson, Chief Market Analyst at Markets.com, said: “Owning most of its real estate portfolio makes it an attractive asset for private equity willing to prepare it. “

Morrisons new salary agreement for staff
Morrisons has a large real estate portfolio (Mike Egerton / PA)

Labor and MPs on the Trade, Energy and Industrial Strategy Committee have raised concerns that the retailer could be dispossessed of its assets in a private equity takeover.

However, Fortress stressed over the weekend that it had not sold any of its freehold or long-term lease properties to Majestic and “does not plan to engage in any significant sale and lease transactions. sale and leaseback of stores “to Morrisons.

Sources close to CD&R said last month that the company believes it “shares Morrisons’ values” and recognizes the quality of the retailer.

An acquisition could result in a combination between Morrisons and MFG, with Morrisons currently operating fewer convenience and convenience stores than some of its competitors.

– After that ?

Morrisons shares surged above 266p on Monday, suggesting that the investment community believes that an offer above the agreed-upon 254p is still relevant.

Many Morrisons shareholders have been silent on the latest moves, but top 10 investors, JO Hambro, said last week he expected a bid of 270 pence a share.

The current share price suggests that many traders currently believe that the appetites of all three interested parties could trigger a bidding war that will result in a bid closer to that price.

CD&R has just under two weeks to make a firm offer if it wants to buy Morrisons, so there will likely be more updates soon.

It’s also possible that a large retail group will enter the fray with an offer.

England v San Marino - FIFA World Cup 2022 - European Qualifiers - Group I - Wembley Stadium
Amazon has a retail partnership with Morrisons and has been touted as a potential buyer (Adam Davy / PA)

Morrisons has a long-standing partnership with US online retail giant Amazon, Morrisons selling groceries through its UK online platform.

Amazon has also grown its brick and mortar retail business in recent years with its acquisition of Whole Foods in 2017 and its recent launch of three Amazon Fresh cashless stores in London.

AJ Bell Chief Investment Officer Russ Mold said, “Strategically, Morrisons has cemented an important relationship as a key supplier and partner to Amazon and McColl’s convenience stores.

“Amazon has long been touted as a potential buyer for Morrisons to help it gain a much stronger foothold in the UK grocery markets, so it’s an obvious name to watch.”


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Mary Moser

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