UK – The private equity bidding war for UK’s fourth largest supermarket chain Morrisons has taken a new twist after the retailer announced that it has agreed to a takeover offer worth £7 billion (US$9.54bn) from US private equity firm Clayton, Dubilier & Rice (CD&R).
Founded in 1899 by William Morrison, Morrisons has expanded from a humble egg and butter stall in Rawson Market, Bradford to a retail behemoth with over 494 stores and 110,000 employees in the UK.
The agreement with CD&R sees Morrisons drop its recommendation of a lower bid from a US investment consortium led by Fortress Investment Group.
Fortress previously caught the eye of Morrisons board when it gave an initial takeover bid of £6.3 billion (US$8.58bn) which was significantly larger than CD&R’s £5.52 billion bid (US$7.52bn) which was rejected for “significantly undervaluing” the business.
Subsequently Fortress raised its offer to £6.7 billion (US$9.13bn) after major shareholders indicated that they wanted more.
The newly announced takeover bid from CD&R – which still needs to be put to a shareholder vote – gives Morrisons an enterprise value of £9.7 billion (US$13.21bn), once debt is included.
Commenting on the new offer, Morrisons chair Andrew Higginson said: “The Morrisons board believes that the offer from CD&R represents good value for shareholders while at the same time protecting the fundamental character of Morrisons for all stakeholders”.
Terry Leahy, senior adviser to CD&R funds, said: “CD&R is delighted to have the opportunity to support the management of Morrisons in executing their strategy to grow and develop the business”.
CD&R investors are however not assured of a win just yet as under British takeover rules, Fortress could still come back with a higher offer, according to Reuters.
At the heart of the private equity bidding wars is Morrisons property portfolio which is considered attractive to investors as the company owns 86% of it’s store freeholds.
According to BBC analysts, this real estate gives the winning bidder the opportunity to raise capital by selling off some stores and either closing branches or renting them back.
Fortress themselves have previously said no stores would be sold, with the bid document saying the group “does not anticipate engaging in any material store sale and leaseback transactions”.
In its last takeover offer, the firm said it “remains committed to becoming the new owner of Morrisons and to being a responsible long-term steward of this great British company through the next stage of its evolution.”
A person close to the deal told BBC for Clayton, Dubilier & Rice (CD&R) offer to be accepted, the private equity firm may have made “commitments similar to those given by Fortress.