New owner to protect Morrisons character after £10bn auction

There was just 1p difference in the final bids for Morrisons but it is now likely that Clayton, Dubilier & Rice (CD&R) will become the new owner of the supermarket group.

Morrisons share price had excitably reached 297p on Friday night in anticipation of a bidding war in Saturday’s auction but CD&R’s highest bid of 287p fell short of investors’ hopes.

However those heightened expectations followed a summer of price increases after CD&R had first lodged a 230p-per-share bid.

The US investment group, which is being advised by former Tesco chief executive Sir Terry Leahy, appears to have won out over rival bidder Fortress. The offer must still be approved at a shareholders’ meeting later this month.

CD&R’s bid is worth nearly £10bn, including debt, with shareholders set to receive nearly £7bn. The auction process had stipulated the rivals’ final bids should be odd and even to ensure a victor – and Fortress’s 286p-per-share bid at the auction ended up just £24m below CD&R’s offer.

It is, however, more than 60% above Morrisons’ share price before the takeover negotiations drove the price up.

CD&R reached agreement with pension trustees last month, which was seen as an important step given the value that Morrisons has placed on its history and approach to business.

Last month it emphasised “the wider responsibilities of ownership of Morrisons” as it looked for bidders to recognise “the importance to the Morrisons business of all stakeholders, including colleagues, customers, pension trustees and suppliers as well as the distinct heritage and history of Morrisons and the legacy of Sir Ken Morrison”.

Commenting on the CD&R final offer, Andrew Higginson, chair of Morrisons, 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 now have the final say and, if the offer is approved, the Board is confident that Morrisons will continue to go from strength to strength under CD&R’s ownership.”

Sir Terry Leahy added: “We are gratified by the recommendation of the Morrisons Board and look forward to the shareholder vote to approve the transaction. We continue to believe that Morrisons is an excellent business, with a strong management team, a clear strategy, and good prospects.”

In a document published on 25 September, CD&R confirmed to Morrisons that it highly values the existing structure, strategy and management team and does not intend to make any significant changes to Morrisons business strategy.

The auction process brings an end months of offers for the UK’s fourth largest supermarket and comes after it rejected an earlier buyout offer from the US private equity firm after it “significantly undervalued the business”.

Since that bid, the supermarket made further headlines in June when it suffered one of the biggest shareholder revolts on record over plans to pay bonuses to bosses.

The interest in Morrisons is testament to the successful turnaround of the business by Andrew Higginson Morrisons chairman and chief executive David Potts, who took over the supermarket chain in 2015. At the time 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 Higginson and Potts and CFO Trevor Strain, the firm has been transformed with Potts predicting in a trading update in May two strong years of growth.

It is expected that Higginson who worked with Potts, Strain and Sir Leahy at Tesco will step down from his role as chair in October once the deal is completed following a shareholder meeting 19 October. Sources state that Leahy will likely replace his former colleague, taking the role as “an involved non-executive chair” in a similar way to he did following CD&R’s acquisition of discount retailer B&M in 2012, a role he held for five years.