Morrisons sold to Clayton, Dubilier & Rice for $ 9.4 billion in a wild bidding war


The CD&R led group emerged as the front runner after outbid the SoftBank group corps
Fortress Investment Group LLC and its partners in an unusual one-day auction on Saturday to determine the winner. The UK Takeover Panel, a government arm that oversees the conduct of business in the country, held the competition to end a month-long stalemate fueled by increased offers on both sides.

The final bid represented a 61% increase in value compared to the market on which Morrisons’ shares were traded prior to the news of the offer.

CD&R based in New York and London, which has entered into a partnership with the US buyout company Ares Management Corp.
and an investment arm of the Goldman Sachs Group Inc.,
pays £ 2.87 per share or $ 3.90 per share. That beats Fortress’ offer of £ 2.86 per share, according to a press release from the takeover board.

Morrisons, as it is called by British shoppers, operates 497 supermarkets as well as a network of cafes, gas stations and grocery stores. The retailer also has a wholesale business that includes the delivery of groceries to Inc.’s
Prime Now and other online delivery services available in the UK.

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Joshua Pack, a Fortress partner, said “We will continue to look for opportunities” in the UK A CD&R representative was not immediately available for comment.

Pandemic lockdowns tripled Morrisons’ e-commerce sales in the past fiscal year. Costs to meet that demand with additional capacity coupled with other Covid-19-related expenses, combined with a drop in fuel sales and the company’s cafes closing during the lockdown, made up for much of that gain.

The UK supermarket industry is highly competitive. Morrisons, founded in 1899, is the fourth largest chain and faces stiff competition from its larger competitors as well as from the German discounters Aldi and Lidl.

That competition has US retail giant Walmart Inc.
sold a majority stake in Asda Group Ltd., the UK’s third largest grocery store after industry leaders Tesco PLC and J. Sainsbury PLC, to TDR Capital, a Europe-focused buyout firm, and UK entrepreneurs Mohsin and Zuber Issa in February.

The rising selling price increases the risk to the business as the UK economy grapples with rising energy prices, staff shortages and disruptions in the food supply chain.

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Part of Morrisons’ long-term value lies in its real estate, where it owns the majority of its businesses. While both bidders tried to underscore their intent to invest in the core business of the grocery store, one person familiar with the deal said tapping into value by selling or renting the property was a crucial part of the calculation .

As part of the Asda deal, TDR and Messrs. Issa are selling Asda gas stations to EG Group, a UK-based operator of gas stations and convenience stores that the brothers and TDR control to reduce their risk.

CD&R could use the same strategy at Morrisons gas stations to fund the takeover of the grocery retailer. The buyout firm already owns Motor Fuel Group, a chain of petrol stations in the UK that could also become a customer of Morrisons’ grocery wholesalers.

Morrisons’ parking lots could also be useful for finding charging points for electric vehicles, according to the person familiar with the deal. The UK stopped selling internal combustion engines in 2030.

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The Takeover Board held the quick competition, which included up to five bidding rounds, coordinated by the Board in London to end a month-long stalemate fueled by ever growing bids on both sides.

It was the highest-profile government bidding process since the September 2018 showdown between Comcast Corp.
and 21st Century Fox Inc., now owned by Walt Disney Co.
, to control the European pay-TV operator Sky PLC. In auctions like this, bidders rely on game theory to gather information from the various bidding rounds and to ensure that the rival is spending as much as possible even if the bid fails.

The deal for Morrisons is part of a wave of deals worldwide, and particularly in the UK, where post-Brexit and pandemic US and other overseas buyers have stepped in to do deals. Companies have closed nearly $ 4.3 trillion in deals worldwide this year, surpassing the 2015 record, according to Dealogic.

The bidding process for Morrisons began in mid-June when CD&R made an initial offer worth around 7.6 billion. The company turned down the offer.

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In July, the company accepted a $ 8.7 billion offer from Fortress, backed by the Canada Pension Plan Investment Board, the real estate arm of Koch Industries, a private conglomerate led by billionaire Charles Koch and Singapore sovereign wealth fund GIC Pte . It then increased its supply to $ 9.3 billion over the next month

CD&R increased the stakes in late August with a counter offer of $ 9.5 billion, based on the exchange rates at the time. The board of directors of the supermarket chain said it was superior to the Fortress commandments. The takeover committee then ordered the bidding auction.

CD&R is a buyout specialist known for both large deals and the recent shift to growth-oriented investing. Targeting a number of industries including retail, healthcare, and technology, it has invested more than $ 35 billion in 100 companies since its inception in 1978. Earlier this year it, along with KKR & Co., paid around $ 5.3 billion to acquire a private software company, Cloudera Inc.
Other notable investments over the years include stakes in Hertz Corp.
, Lexmark and Kinkos.

Write to Ben Dummett at [email protected]

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