More speculation on Morrisons buyout sees shares rise

REPORTS in the City of London have said bankers are working on debt financing packages of around £5bn to back a potential sale of supermarket chain Morrisons to private equity funds.

Reuters has reported that the founding family of Morrisons, which own a 9.5% stake, has contacted buyout firms to guage their interest in taking the business private after a fall in Christmas sales.

And the Bradford-based group, Britain’s fourth largest grocery chain after Tesco, Asda and Sainsbury’s, saw its shares rise 5% to close at 243.96p on the speculation.

Cash-rich private equity firms are keen to do new buyouts after low levels of mergers and acquisitions (M&A) activity in 2013, although the large size of this deal may mean that they have to work together, bankers said.

“The size of the transaction, which could get as high as £10bn, could require a number of private equity players to team up, given the size of the equity cheque needed,” a senior leveraged loan banker told news agency Reuters.

Morrisons declined to comment.

Morrisons was founded in 1899 and listed on the London Stock Exchange in 1967.

Morrisons, which has lucrative property assets, has already been considered as a takeover target by CVC, which studied a potential bid in 2007.

Morrisons’ shareholders and retail analysts are doubtful that a take-private deal will happen but bankers and sponsors have been in talks for more than a month to see if the financing is theoretically possible, a second banker said.

A debt package of around £5bn would be one of the largest buyout financings since the financial crisis. A financing would be a mix of loans and high-yield bonds in sterling, dollars and euros to maximize liquidity, two bankers said.

The loan component is expected to have an ‘opco-propco’ structure which is commonly used on loans for companies with property assets. Property company debt is serviced with rent payments from an operating company, they added.