Investor group led by the fortress signs a £ 9.5 billion deal to buy Morrisons

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A trio of Fortress-led private investment groups, owned by SoftBank, have closed a £ 9.5 billion deal to acquire Wm Morrison, the UK’s fourth largest supermarket chain.

Under the terms of a deal revealed Saturday morning, Fortress, along with Canadian pension fund CPPIB and a unit from Koch Industries, will pay 252p per share and support a special 2p dividend on the grocer’s purchase. It values ​​Morrisons’ equity at £ 6.3 billion before taking into account £ 3.2 billion in net debt.

The deal comes two weeks after the Bradford-based group announced it had rejected an unsolicited 230pA share approach by private equity group Clayton, Dubilier & Rice.

The Fortress-led offering valued Morrisons shares at a 42 percent premium to their price before the company disclosed CD & R’s approach.

The deal would be the largest UK private equity buyout since KKR bought the pharmacy chain Boots in 2007 and comes as buyout groups have announced at least 12 deals for UK-listed companies since the beginning of this year amid Brexit and the pandemic prices weigh on the stock.

Andrew Higginson, Chairman of Morrisons, said: “We have taken a very careful look at Fortress’s approach, plans for the business and overall suitability to own a unique UK grocery manufacturer and shop owner with over 110,000 colleagues and an important role in UK food production and agriculture. “

As part of the deal, investors set a number of commitments, including plans to keep the grocer’s headquarters in Bradford. The group said it would secure pensions and support the supermarket’s agreement to pay all employees at least £ 10 an hour.

The Fortress Group said it would consider options for the future of Morrisons gas stations within six months of a deal being closed. During this period, it would also evaluate potential acquisitions and review Morrisons’ long-term plans for its real estate portfolio.

Fortress said it was not expecting any “substantial” sale-and-leaseback from Morrison’s stores. Morrisons owns 85 percent of its 497 stores and also has one of the UK’s largest food manufacturers.

The fortress-led group took a total of five approaches to Morrisons, beginning May 4 when it offered 220p a share, said people with direct knowledge of the matter.

The New York-based Fortress has been thinking about rapprochement with Morrisons since the end of last year, people said. It has not made any major UK deals of this kind to date.

The bidders are providing more than £ 3 billion in equity to fund the deal, about half of which will come from Fortress and the rest to be split between CPPIB and Koch, people said. CPPIB invests through its credit department.

The transaction will be funded with £ 5.75 billion in debt underwritten by HSBC and the Royal Bank of Canada.

Fortress is owned by Japan’s SoftBank, which acquired the company in 2017 in a $ 3.3 billion deal, making it an unusual asset in the tech investor’s portfolio.

The group has approximately $ 53.1 billion in assets under management and is best known for its work in credit and distressed investment situations. It has invested in the US supermarkets Albertsons and Fresh & Easy.

Fortress bought UK retailer Majestic Wine for £ 95 million in 2019.

Rival CD&R previously set a July 17 deadline to either make a firm offer for Morrisons or to leave. Now that the board has supported an alternative offer, it is not clear whether CD&R will try to disrupt the process with a counter offer.

Mark Kelly, a managing director at Cowen, said in a note Saturday that the Fortress offer may not be the end of the game. “Recently there have been calls from shareholders to consider prices like 270 pence reasonable,” he said.

“Probably the board of directors of Morrisons realized that in the absence of competition there was a lack of tension – and therefore once a” [private equity] If the bidder has submitted an offer within an acceptable framework, it is a reasonable tactic to accept this, make it public and hope that it will then come to a competitive auction. ”

Ross Hindle, an analyst at Third Bridge, said it was enlightening to see how Amazon responded to the news. “You are an important partner for Morrisons, with much speculation that they might make an offer,” he said.

The largest shareholder in Morrisons is Silchester, a London-based asset manager who owns 15 percent of the shares. The company did not immediately comment on the Fortress offer.

A top 30 Morrisons shareholder said Fortress was trying to put its offering on the “cozier” end of the private equity spectrum, “with an emphasis on protecting all stakeholders and not trying to get the Asda playbook Use ownership and leverage. That narrative was likely a powerful driver for the board’s recommendation at that level, “they said.

The transaction requires the approval of 75 percent of Morrisons’ shareholders through an acquisition mechanism known as the Scheme of Arrangement.

Additional coverage from Attracta Mooney

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