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Prospect of bidding war for Morrisons drives share price surge

Written by on 05/07/2021

Shares in Morrisons surged by more than 11% at Monday’s market open as investors licked their lips at the prospect of a bidding war for the UK’s fourth largest supermarket chain.

There is speculation of interest from Amazon and private equity firms after it was announced on Saturday that the FTSE 100 firm had agreed a takeover led by SoftBank-owned Fortress Investment Group.

The deal, which included commitments to the current management team, strategy and its £10 per hour shop floor wage, valued Morrisons at £6.3bn through a bid of 254p-per-share.

Morrisons shares were trading at up to 267p-per-share in early deals.

Amazon Fresh in Ealing
Image: Amazon, which has an existing delivery partnership with Morrisons, currently has a small grocery offering of its own

The Fortress-led bid topped a rival £5.5bn offer from US private equity firm Clayton, Dubilier & Rice (CD&R) two weeks earlier.

The recommended offer by the consortium, which also includes Canada Pension Plan Investment Board and Koch Real Estate Investments, is unlikely to be the final bid on the table.

CD&R could still come back with a new offer – and it has until 17 July to do so under City takeover rules.

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Private equity rival Apollo Global Management revealed on Monday morning that it was in “the preliminary stages of evaluating a possible offer for Morrisons”.

Its statement added: “No approach has been made to the board of Morrisons.

“There can be no certainty that any offer will be made, nor as to the terms on which any such offer might be made.”

Market analysts expect Amazon, which has an existing grocery delivery partnership with Morrisons and a fledgling Amazon Fresh store offering of its own, could be among interested parties.

Morrisons is the UK's fourth-largest supermarket chain by market share
Image: Morrisons owns 85% of its supermarket sites

Morrisons has 497 stores across the UK and employs 110,000 people.

It is attractive because supermarket chains are cash generative and largely own the property they operate from.

Fortress, which bought Majestic Wine in 2019, has pledged to be a “good steward” of Morrisons, if its consortium wins shareholder backing, with no “material” sale and leaseback property deals planned.

The Unite union said it was seeking “unbreakable guarantees” for workers from the management team to ensure they did not lose out if a takeover proceeded.

David Potts, chief executive of Morrisons
Image: David Potts took over the top job at Morrisons in 2015

It pointed to the prospect of a “bonanza” payout for chief executive David Potts and his top team under the terms of the Fortress agreement.

It would see Mr Potts make £9.2m by selling his existing shares alone – not accounting for current bonuses – while chief operating officer Trevor Strain would pocket £3.6m.

City commentator David Buik of Aquis Exchange said the accepted bid for WM Morrison raised many questions.

He wrote: “Is this the right value? Is this action the start of asset stripping, with Morrison owning so much property?

“Will this start a bidding war? Will… Amazon suddenly appear from ‘left-field?

“Could Sainsbury’s soon be in play as another target for hungry predators?

“Morrison might look like ‘a snip’ to get cheaply into (the) UK food market.

“The shares have gone nowhere in the last five years. Last year Morrison posted a profit of £201m on sales of £17.6bn.”

 Sky News

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