Supermarket Sweep: Morrisons Rejects Private Equity Bid​


By Curtley Bale​

The Story

The UK’s fourth-largest supermarket chain, Morrisons, has rejected a bid from US private equity firm Clayton, Dubliner & Rice (CD&R). The unsolicited bid on 14 June 2021 valued the company at £8.7 biilion.

Morrisons’ board rejected the deal, citing their belief that the business was worth far more. At this stage, they also appear to be content to remain as a listed company. Morrisons rejected the deal on 17 June, meaning CD&R have until 17 July to make another bid or walk away, based on the UK Takeover Code rules. During the bid, Morrisons received financial advice from Rothschild & Co, whilst CD&R sought advice from Goldman Sachs.

What It Means For Businesses and Law Firms

CD&R’s 230 pence per share bid valued Morrisons at a 29% premium, based on its closing price on 13 June of 178p. The bid gives the supermarket a £5.5 billion market valuation, with CD&R also offering to take on Morrisons’ £3.2 billion in debt (BBC). Morrisons’ board believes its pandemic performance warrants an improved offer, as does its unique business structure - the supermarket chain owns the freehold of 85% of its 497 stores. This is a higher rate of ownership than both competitors Tesco and Sainsbury’s.

The unsolicited bid from CD&R sent Morrisons' shares soaring by 30% to 232p per share during early trading on Monday 21 June. This may signify that the market believes a change of ownership will be good for the company, or that the bid may lead to even larger bids in the future.

Despite being on a correctional path since 2015, Morrisons' performance has dipped in the recent past. It has attempted to improve its wholesale business, as well as develop initiatives such as ‘Market Street’ - which replicates the vast array of goods that are available in a traditional town market place. Despite this, its shares are lower now than in 2015, and are down 6.3% year on year. Figures like these may put pressure on its management, and can lead to takeover bids as a form of corporate control. Unhappiness with the supermarket’s management was also demonstrated earlier in June, when 70% of Morrisons’ shareholders voted to reject a recent directors’ remuneration report (The Times).

Private equity bids are at a two-decade high, due to a slump in share prices amidst pressure from the pandemic and the aftermath of Brexit. Since the beginning of the year, there have been 12 buyout bids for UK-listed companies (Refinitiv).

CD&R has experience in the UK market, as it already has a shareholding in B&M. A successful bid may see Morrisons transition towards more convenience stores and petrol forecourts, since CD&R also invests in Motor Fuel Group. This could put the chain in direct competition with Asda (whose £6.8bn takeover by TDR and the Issa brothers was confirmed by the Competition & Markets Authority this week) as the Issa brothers also own Motor Fuel’s rivals, EG Group (Reuters).

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