All you need to know about the battle to control Bradford-based supermarket chain Morrisons

Morrisons agreed a £7 billion offer on Thursday evening in the latest twist in the UK supermarket chain’s dramatic takeover battle.

Friday, 20th August 2021, 1:34 pm
Morrisons agreed a £7 billion offer on Thursday evening in the latest twist in the UK supermarket chain’s dramatic takeover battle.

Shares jumped on Friday morning after investors digested the new deal from US private equity firm Clayton, Dubilier & Rice (CD&R).

It comes weeks after a rival bidder, a consortium led by private equity rival Fortress, increased its offer to £6.7 billion in the hope this would help it secure a deal.

UK supermarkets have been buoyed by the pandemic over the past year as sales were boosted by the closure of non-essential shops and hospitality firms.

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

This has not been enough to put off prospective bidders and a rise in shares beyond the value of the current takeover offer suggest a bigger bid could come forward.

Here the PA news agency answers the key questions about the potential takeover of Morrisons:

– Who currently owns and runs Morrisons?

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

Morrisons steadily expanded and became a publicly listed business under the leadership of Ken Morrison in 1967, listing on the London Stock Exchange.

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

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

Morrisons has been led by chief executive David Potts since 2015, alongside chief operating officer Trevor Strain, and chief finance officer Michael Gleeson.

Mr Potts would be in line for a significant payday were the 285p-per-share move completed and all his share interests paid out.

The company board have backed the offer by CD&R, which chairman Andrew Higginson saying it represents “good value for shareholders”.

– Who has agreed to buy Morrisons?

New-York based private equity firm Clayton, Dubilier & Rice is in the driving seat to buy the supermarket after its latest offer was backed by management.

CD&R initially made a £5.5 billion approach in June but returned to the table with the stronger offer after a rival bidder was the first to have a bid approved by Morrisons.

The 43-year-old company is one of the most firmly established investors in the sector and has been advised by former Tesco chief, Sir Terry Leahy, over the past 10 years.

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

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

– Who are the other potential bidders?

A consortium led by Softbank-owned Fortress had been looking the most likely victor in the bidding war until it was trumped this week.

The group succeeded with a £6.3 billion offer in July and strengthened this further to £6.7 billion weeks later amid criticism from investors, including Morrisons largest shareholder Silchester.

The consortium is now “considering it options” as to whether it returns with another bid.

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

Fortress – which was bought by Japan’s Softbank for 3.3 billion US dollars (£2.4 billion) in 2017 – has previously invested in grocery retail in both North America and Europe.

In 2019, the private equity firm snapped up UK wine retailer Majestic Wines for about £95 million.

Fortress highlighted that it reversed planned redundancies at Majestic after it bought the business and would look to invest in Morrisons.

However, the group has moved Majestic’s retail business into the firm’s separate property empire and leased sites back to Majestic. Any move for Morrisons will face scrutiny over fears a similar leaseback deal could take place.

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

Morrisons appears an attractive opportunity for private equity as its share value had recently sat below its pre-pandemic levels despite strong recent revenues.

Thin margins and rising costs have continued to press down on valuations in the supermarket sector, fuelling regular speculation for potential takeovers.

Nevertheless, Morrisons has significant ownership of parts of its supply chain and a large property portfolio which will appeal to possible buyers.

Neil Wilson, chief market analyst at Markets.com, said: “Owning the bulk of its store estate outright makes it an attractive asset for private equity intent on gearing it up.”

The Labour party and MPs on the Business, Energy and Industrial Strategy committee have raised concerns that the retailer could be stripped of assets in a private equity takeover.

However, in an attempt to allay those fears, CD&R said Morrisons’ strengths “include its freehold property portfolio, which affords greater flexibility and operational control, as well as its vertical integration, which enables it to compete successfully on price and guarantee the quality of its products in partnership with local suppliers and farmers”.

However, it stopped short of saying freeholds would not be sold.

– What next?

Morrisons shares leapt above 290p on Friday, suggesting the investment community believes that a bid higher than the 285p agreed offer is still on the cards.

Many of Morrisons shareholders have remained quiet about the latest move but the value is now above the 270p initially quoted by some investors as a good value for the retailer.

Fortress had intended to have a vote on its offer on Friday August 27 but it is now unclear when a deadline may be for the consortium to submit any further offer.

There is also the still the slight potential that a major retail group could enter the fray with an offer.

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

Amazon has also boosted its bricks-and-mortar retail business in recent years with its acquisition of Whole Foods in 2017 and its recent launch of three Amazon Fresh till-free stores in London.

AJ Bell investment director Russ Mould said: “Strategically, Morrisons has cemented an important relationship as a key supplier and partner to Amazon, and to McColl’s convenience stores.

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