Shareholder suggests more commitments needed before agreeing Morrisons sale

One of Morrisons’ biggest shareholders has suggested the latest £7 billion bid by private equity house Clayton, Dubilier and Rice (CD&R) for the supermarket may require more commitments.

Andrew Koch, senior fund manager at Legal & General Investment Management – which has a 2.8% stake in the grocer making it a top-10 shareholder, said the investor would continue assessing the deal.

He added: “A significant concern has been the lack of disclosure around the value of the property portfolio.

“With more competitive bids being made, the bidding parties will have paid close attention to this during their due diligence.

“This gives us some comfort that the true value should be realised for shareholders including our clients.

“However, we continue to look into the other aspects of the bid, including commitments for the future management of the business.”

Shares in Morrisons have continued to rise, despite the board of the company saying shareholders should accept the 285p-a-share offer from CD&R, which values the business at £7 billion.

The investment giant announced late on Thursday evening last week that a deal to buy the Bradford-based retailer has been unanimously agreed by the listed firm’s board.

But shares were up on Monday, closing at 292.1p, up 1.1p on the day, suggesting that investors expect the bidding war is likely to continue and a more expensive deal could be struck.

The supermarket chain had previously been set for a £6.7 billion takeover by a consortium led by another US private equity firm, Fortress, which owns UK wine retailer Majestic.

The retailer confirmed on Thursday that this agreement has now been withdrawn.

Following the CD&R bid, Oppidum Bidco – the name of the Fortress-led group – said it is now “considering its options” over whether to field another offer to buy the supermarket group.

It represents the latest stage of a lengthy takeover process that began in June, when CD&R had an initial £5.5 billion approach rebuffed by Morrisons bosses.

In June, the board said the offer “significantly undervalued Morrisons and its future prospects”.

In the updated offer document, released at 9pm last Thursday, the company said it “recognises the legacy of Sir Ken Morrison, Morrisons’ history and culture, and considers that this strong heritage is core to Morrisons and its approach to grocery retailing”.

The private equity house, which will face less scrutiny than a stock market-listed business, said it “will support Morrisons in further building on these strengths” and suggested it had no plans to sell off its freehold stores.

Most supermarkets lease their sites, but Morrisons has famously resisted calls for several years to use sale and leaseback agreements to line the pockets of investors.

The City feared CD&R could be planning a similar move. Fortress placed the freeholds for Majestic into a separate business when it bought the brand.

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”.

New York-based firm CD&R 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.

CD&R is also the owner of forecourt giant Motor Fuel Group (MFG), sparking initial 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.