Private equity suitors step up battle for Morrisons

by Jonathan Adams
Morrisons

The American private equity battle for Morrisons, the UK’s fourth largest supermarket by market share, is hotting up. Reports suggest Clayton Dubilier & Rice, which saw a a £5.5 billion bid rejected, is putting together a new offer backed by a financing package put together by JP Morgan, Goldman Sachs and BNP Paribas. The former two are also advising the private equity giants on their acquisition bid.

Fortress, another private equity group from the USA, subsequently led another consortium which made a £6.3 billion bid, alongside commitments to maintain the company’s Bradford headquarters, vertically integrated supply chain and other elements of the company’s traditions. That was accepted by the board who recommended it to shareholders. The Fortress consortium included the Canada Pension Plan Investment Board and Kock Real Estate and was underwritten by HSBC and Royal Bank of Canada.

Apollo, another American private equity firm was also in the running but yesterday said it had decided against making its own offer and is instead holding discussions with Fortress with a view to joining its consortium.

The current Morrisons share price is, however, higher than the 252p-a-bid offer made by Fortress, indicating investors are confident a bidding war will push the price up further. The supermarket chain has 497 shops around the UK and employs 120,000.

Apollo’s bid to join Fortress’s bid may prove appealing as it will both increase the consortium’s financial muscle as well as reducing the amount each member is putting up. Ot was reported last month that Fortress was open to the possibility of another investor joining its bid. For its part, Apollo may well get a better deal for Morrisons as part of the Fortress bid than it would by going it alone and intensifying a bidding war.

Market analysts believe the Clayton Dubilier & Rice bid being led by former Tesco boss Sir Terry Leahy won’t rush into revealing its cards with a new offer and will instead wait until investors have received full details of the Fortress offer. The documents formally outlining the details of the offer have to be submitted by July 31, 28 days from the initial public announcement.

Fortress has gone to significant lengths to assuage fears over the number of major British companies being sold off to foreign investors by communicating with the business secretary Kwasi Kwarteng and environment, food and rurar affairs secretary George Eastice. The group has offered assurance the new owners would, if successful, hounour commitments made on pensions and climate change. Letters have been written assuring the UK government the consortium would be a “supportive and responsivle owner of Morrisons”.

Darren Jones, chairman of the Competition and Markets Authority has, however, raised concerns, saying

“there remain questions . . . about whether the right regulatory checks and balances are in place to ensure consumers, workers and pensioners are protected in the most significant takeovers”.

The Authority’s chief executive Anrea Coscelli has also said that its options were limited when it came to controlling debt-fuelled private equity takeovers, writing:

“The CMA can only respond to these questions insofar as, in doing so, it is fulfilling its legal mandate to promote competition in the interests of consumers, and it is exercising one of its statutory functions.”



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