When the stock market opens at 8am on Monday, all eyes will be on Morrisons’ share price as City insiders weigh up the likelihood of a bidding war for the suddenly in-demand supermarket chain.
Over the weekend, executives in at least three groups are thought to have been frantically Zooming financiers, as the battle to buy the Bradford-based supermarket chain intensified.
On Saturday, Morrisons’ management, which operates 500 stores and employs more than 1,100 staff in the UK, announced they had accepted a takeover bid by a group of funds led by Fortress, the owner of Majestic Wine.
The deal, which came after months of secret talks, valued Morrisons shares at £6.3bn, although the funds will also take on £3.2bn of debt.
Fortress made four proposals before its accepted offer reached a total value of 252p a share, as well as a 2p cash dividend, compared with the retailer’s closing share price on Friday of 240p.
Recommending the offer to shareholders, Andrew Higginson, the chairman of Morrisons, said: “The Morrisons directors believe that the offer represents a fair and recommendable price for shareholders which recognises Morrisons’ future prospects.”
But within hours of the announcement, it emerged that that another American private equity player, Apollo Global Management, had hired Morgan Stanley with a view to mounting a takeover bid of its own.
The approved Fortress deal announced on Saturday was the second firm offer for Morrisons, dwarfing the £5.5bn bid from US private equity firm Clayton, Dubilier & Rice (CD&R), which Morrisons directors rejected on 19 June, saying it “was far too low”.
Despite all the interested parties remaining tight-lipped on Sunday, CD&R, which has the former boss of Tesco, Sir Terry Leahy, as a senior adviser, was said by insiders to have “plenty more petrol in the tank”. It believes that some on the Morrisons board would be more amenable to an increased offer. Under UK stock market rules the rival US investment firm has until 17 July to either make a firm offer or walk away.
It raises the prospect of a three-way battle for the company that until recently was seen as largely unloved by investors, although it remains to be seen whether the other interested groups will top the Fortress-led offer.
Supermarkets have looked vulnerable to private bidders in recent months after share price falls stemming from higher costs handling the Covid crisis, which cancelled out the benefits from booming sales during lockdowns.
Morrisons is considered attractive because it owns the freehold on about 85% of its properties – including its supermarkets – and for its integrated business approach. It has long-term relationships with its farmers and suppliers as well as its own food manufacturing sites and even its own fishing fleet.
Andrew Gwynn, an equity analyst at the financial firm Exane, said he believedthe Fortress-led bid had a good chance.
“Fortress doesn’t seem to be proposing any aggressive change, with a focus on simply empowering the management team to deliver on their longer-term strategy. The deal is conditional on 75% approval from shareholders. We think that should be achievable at this price range. The deal is very likely to succeed,” he said.
However, shareholders, who are yet to approve the takeover, could find their heads turned if another party comes in with a significantly higher offer.
Institutional investor JO Hambro, which owns 3% of the supermarket, said the Morrisons’ board was correct to reject the initial CD&R offer, but indicated it could back a deal at a higher price. “We believe any offer for the group approaching 270p per share merits engagement and consideration,” it said just last week. Ahead of bid interest Morrisons had been trading at about 178p a share, valuing the firm at about £4.3bn.
Meanwhile, farmers groups and the unions have raised the alarm, fearing the takeover will be bad news for their members. Morrisons describes itself as “British farming’s single biggest customer” and works directly with more than 2,200 livestock farmers and 200 growers – some of whom have supplied the company for more than 30 years.
Workers union Unite said it wanted “unbreakable guarantees” on jobs and conditions or it would not cooperate with any sale.
Unite’s national officer for road transport Adrian Jones, which represents Morrisons’ warehouse and distribution workers, said the company was “unique among UK supermarkets” because it owns its supply chain, unlike other supermarkets which rely more on third-party wholesalers.
Labour’s shadow business minister Seema Malhotra said the government must closely scrutinise the takeover bid and called on ministers to work with the consortium to ensure “crucial commitments to protect the workforce and the pension scheme are legally binding, and met”.
If the deal goes through, the bid for the UK’s fourth-largest supermarket would be the biggest private equity deal since the £11bn takeover of Boots in 2007. Saga, the AA and RAC are among the big name brands that have fallen into the hands of private equity buyers in recent years.
It comes hot on the heels of a takeover of Asda which was backed by private equity group TDR Capital and led by the Issa brothers.