Morrisons board switches sides after rival bidder ups price
The saga of Morrisons takeover took another turn last night when Clayton Dubilier & Rice (CD&R) increased its bid to £7bn and received the backing of the supermarket’s board.
The latest twist in the race to acquire the Bradford-based supermarket chain sees CD&R’s offer top a rival bid by a consortium of investors which had offered £6.7bn.
The CD&R bid is priced at 285p-per-share although Morrisons’ share price rose to 292p in early trading as investors speculate the bidding war may still continue.
CD&R’s latest bid is worth £1.3bn more than its first bid earlier this summer, which had been at 230p-per-share, and £750m higher than the first bid accepted by the Morrisons board had been at 254p from a consortium led by Fortress.
Andrew Higginson, chair of Morrisons, said: “The Morrisons board believes that the offer from CD&R represents good value for shareholders while at the same time protecting the fundamental character of Morrisons for all stakeholders.”
He added that CD&R has a strong record of developing, strengthening and growing the businesses that it invests in and that the business and Morrisons’ board have a shared vision of the supermarket’s future, giving “the Morrisons board confidence that CD&R will be a responsible, thoughtful and careful owner of an important British grocery business”.
This is the second time the US private equity firm has approached Morrisons, with its first a £5.5bn offer rejected by the board in June after Britain’s fourth largest supermarket said the deal “significantly undervalues the business”.
The rejection of the CD&R bid was swiftly followed by a bid which in total was worth £9.5bn including £3.2bn of net debt, by a consortium led by Fortress Investment Group that was initially backed by the board of Morrisons.Since then this group has received further support including Apollo Global Management.
Despite this, Morrisons’ largest shareholder said it wouldn’t support the bid. This led to an increased offer by the Fortress-led consortium which has since been surpassed by CD&R’s latest offer.
The supermarket chain is now recommending its shareholders approve the new bid, which if successful the bid would reunite former Tesco chief executive Sir Terry Leahy who is an advisor to CD&R, with former Tesco colleagues David Potts and Trevor Strain, Morrisons’ chief executive and chief operating officer respectively .
Leahy said: “CD&R is delighted to have the opportunity to support the management of Morrisons in executing their strategy to grow and develop the business. This grocery sector in the UK is undergoing great change and we believe Morrisons is well placed, with CD&R’s support to succeed in this environment.”
He added that the PE firm values Morrisons’s “distinctive business model”.
The latest bid comes at a 60% premium to the closing of 178p per share on 18 June and a circa 59% premium to the three month weighted average of 180p per share.
In a statement this morning the Fortress led consortium said it was “considering its options ion respect of its all cash offer” for Morrisons and urged the supermarket’s shareholders to “take no action”.
Analysts have previously suggested that Amazon may also enter the fray for the supermarket, having had a long standing deal with Morrisons and listing its products through its Amazon Prime Now service which recently shut its stand-alone platforms in order to be integrated into the main site.
Morrisons has been making plenty of headlines this year, having suffered one of the biggest shareholder revolts on record in June over plans to pay bonuses to bosses.
However the ongoing saga over ownership actually belies the successful turnaround of the business over the last six years by the leadership team.
At the 2014 AGM, former chairman Sir Ken Morrison told then Morrisons chief executive Dalton Philips: “I have something like 1,000 bullocks and, having listened to your presentation, Dalton, you’ve got a lot more bullshit than me.”
In 2015, when Higginson and Potts joined the supermarket, the business was widely seen to have lost its way and was losing ground to the discount retailers of Aldi and Lidl while failing to make any impact on the middle ground.
However under the stewardship of trio of Higginson, Potts and Strain, the firm has been transformed with Potts predicting in a trading update in May two strong years of growth.
This latest bid from CD&R comes as take-private deals have trebled with investors looking for a “bargain in public”.