Morrisons’ shares fall after the auction as the loss of the US bidder contemplates other deals in the UK

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Wm Morrison’s shares fell nearly four percent after a successful takeover bid for the grocer from private equity firm Clayton, Dubilier and Rice turned out to be lower than hoped.

New York-based CD&R defeated a consortium led by US private equity firm Fortress in an auction for supermarket company Big Four on Saturday. This is the end of a takeover dispute that began in June.

It also marks a major turning point in the history of Morrisons, which was founded as an egg and butter shop in Bradford in 1889 and floated on the stock exchange in 1967 after opening the first supermarket in its hometown six years earlier.

The CD&R offer, unanimously recommended by the Morrisons board of directors, values ​​the grocer at £ 7.1 billion, or 287 pence per share, beating the last Fortress offer of 286 pence.

Morrisons’ stock price falling 11.1p to 285.9p yesterday signaled that investors had been hoping the auction would place a higher bid.

Nonetheless, Morrisons said the final CD&R offering represented a premium of approximately 61% on the closing price of 178 pence per share prior to the beginning of the offering period.

Attention should now be drawn to the future of J Sainsbury, which is also linked to the interest of private equity actors. Sainsbury’s shares closed 3.4% yesterday at 294.1 pence.

Asda was sold by WalMart to gas station operators Zuber and Mohsin Issa earlier this year in a private equity-backed deal valued at £ 6.8 billion.

After losing Morrisons, Joshua A Pack, managing partner of Fortress said that “The UK remains a very attractive place to invest in in many ways and we will continue to explore opportunities to help strong management teams grow their businesses and create long-term value.” . ”

Sophie Lund-Yates, an equity analyst with stockbroker Hargreaves Lansdown, said, “While this acquisition story may be over soon, that doesn’t mean we won’t see others.

“Fortress is clearly interested in what the UK has to offer and a boom in private equity activity in London this year means they won’t be the only ones. A weak pound and low interest rates mean UK companies might look more enticing now than they have been for some time, and further offers for UK companies cannot be ruled out. ”

Job and pension fears have been voiced since the CD&R-Fortress bid war first broke out. There has also been speculation that a takeover by a private equity owner could result in the sale of its mostly property holdings. Morrisons has 497 stores in the UK, most of which are directly owned by the company

However, Morrisons chairman Andrew Higginson said CD&R is a “responsible, considerate and prudent” owner.

CD&R, advised on its offer by former Tesco boss Terry Leah, said its previously stated intentions regarding the deal were unchanged.

In its planning document, CD&R said that Morrisons’ 110,000+ employees “are at the heart of the business and at the core of the differentiated customer experience that helps define the Morrisons offering”. It adds that once the deal goes into effect, “the existing contractual and statutory labor rights, including existing pension rights, of the entire Morrisons management team and employees will be fully protected”.

CD&R also says in the document that ownership of the Morrisons stores “will continue to be a cornerstone of Morrisons”.

“Bidco does not intend to participate in sale-and-leaseback transactions for material warehouses,” the documents say.

The current Morrisons management team, led by CEO David Potts, will remain in place. Mr. Potts previously worked at Tesco under Mr. Leah. Morrisons will continue to be headquartered in Bradford and run as an independent company.

Ms. Lund-Yates said the price offered by CD&R “sounds steep, but reflects significant growth opportunities”.

“In particular, the delivery and delivery partnerships with Amazon will attract potential buyers,” she added.


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