Morrisons leaps after rejection of $ 7.6 billion private equity offer | WKZO | All Kalamazoo
By James Davey
LONDON (Reuters) – Morrisons shares jumped to a third on Monday in hopes that US private equity firm Clayton, Dubilier & Rice (CD&R) could increase its proposed bid for the UK supermarket group or flush out other bidders.
Morrisons, the fourth-largest UK grocer by sales behind market leader Tesco, Sainsbury’s and Asda, said on Saturday it had rejected a proposed cash offer of £ 5.52 billion ($ 7.62 billion ) from CD&R.
The approach highlights the growing appetite for private equity for supermarkets in Britain, attracted by their regular cash generation and freehold real estate assets.
Morrisons said the CD&R offer of 230 pence a share, a 29% premium over Friday’s closing price, “significantly undervalues” the group and its outlook. Including net debt of £ 3.17 billion, the CD&R offering price gives Morrisons an enterprise value of £ 8.7 billion.
Morrisons shares rose 57.75 pence to 236.3 pence at 13:51 GMT, with some analysts saying they expected CD&R to assess investor reaction before deciding on its next move.
Under UK takeover rules, CD&R, which has former Tesco boss Terry Leahy as its senior adviser, has until July 17 to announce its firm intention to bid or pull out.
Shares of rivals Tesco, Sainsbury’s and Marks & Spencer rose as much as 3.2%, 5.7% and 4.1% respectively in hopes that the entire industry could be on the line, analysts said. , adding that some short sellers were also closing positions.
Silchester and Columbia Threadneedle, Morrisons’ two largest investors, whose Refinitiv data showed they had 15% and 7.4% stakes, respectively, both declined to comment.
In addition to the possibility of other private equity players entering the fray, there has long been speculation that online shopping giant Amazon, which has a partnership deal with Morrisons, could emerge as a bidder. potential.
An Amazon spokesperson declined to comment.
Analysts said Morrisons was attractive for private equity because it owns 85% of its nearly 500 stores. It is also unique among UK supermarket groups, making more than half of the fresh food it sells. It has 19 manufacturing sites, most of which are fully owned.
With a workforce of 118,000, Morrisons is one of the largest private sector employers in the country.
Britain’s opposition Labor Party warned on Sunday that a private equity acquisition of Morrisons could put jobs at risk.
A spokesperson for Prime Minister Boris Johnson declined to comment.
The Usdaw Traders Union, which represents Morrisons staff, also made no comment.
DO NOT RECOGNIZE THE VALUE
Industry executives and some industry analysts believe the stock market has failed to recognize the inherent value of listed supermarket groups in Britain.
They argue that if the stock markets don’t value them appropriately, buyers will.
“Investors want a very binary story about collapsing, cutting capital spending to a minimum and just becoming an ATM,” a senior supermarket executive told Reuters.
The executive said it was possible that even Tesco, with a market value of £ 17.3 billion, could receive an approach.
Gas station billionaires Zuber and Mohsin Issa have teamed up with private equity firm TDR Capital to buy a controlling stake in Asda from Walmart in a deal valuing the group at £ 6.8 billion.
The agreement was reached in February and follows the blocking by the competition regulator of the takeover of Asda by Sainsbury in 2019.
In April, Czech billionaire Daniel Kretinsky increased his stake in Sainsbury’s to nearly 10%, sparking speculation about the deals.
Morrisons and Tesco shares closed below their pre-coronavirus pandemic levels on Friday.
As sales skyrocketed across all UK supermarket groups during the coronavirus crisis, their profits fell sharply due to the huge extra costs incurred.
($ 1 = 0.7243 pounds)
(Reporting by James Davey Additional reporting by Simon Jessop, Thyagaraju Adinarayan and Elizabeth Piper; Editing by David Goodman, Alexander Smith and David Evans)