US private equity firm CD&R to acquire UK supermarket Morrisons for US$9.5B

UK – U.S private equity firm Clayton, Dubilier & Rice (CD&R) is set to take control of Britain’s fourth-biggest supermarket group Morrisons after winning the auction for the retailer with a 7 billion pound ($9.5 billion) bid.  

CD&R’s 287 pence per share bid narrowly beat the one made by a consortium led by Softbank (9434.T) owned Fortress Investment Group which had made an offer worth just a penny less per share at 286 pence. 

Morrisons’ board recommended that shareholders vote in favor of the 287 pence per share offer at a meeting slated for Oct. 19, saying the private equity group had confirmed its previously stated intentions towards Morrisons remained unchanged. 

Some of the commitments CD&R had made during the takeover bid include retaining Morrisons’ headquarters in Bradford, northern England, and its existing management team, led by CEO David Potts. 

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The private equity firm also says it will execute the supermarket chain’s existing strategy, not sell its freehold store estate and maintain staff pay rates. 

Morrisons started out as an egg and butter merchant in 1899 and has gradually grown into a major retail chain. It is Britain’s fourth-largest grocer after Tesco, Sainsbury’s, and Asda. 

“Today’s final offer from CD&R represents excellent value for shareholders while at the same time protecting the fundamental character of Morrisons for all stakeholders,” Morrisons Chairman Andrew Higginson said in a statement. 

If shareholders approve the offer, CD&R could complete its takeover by the end of the month, making Morrisons the second UK supermarket chain in a year to be acquired by private equity after a buyout of no. 3 player Asda, completed in February. 

The takeover battle which has been running since May is the most high-profile of a raft of bids for British companies this year, reflecting private equity’s appetite for cash-generating UK assets. 

The final offer represents a 61% premium on Morrisons’ share price before takeover interest publicly emerged in mid-June.  

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Some analysts have that due to the cost of acquiring the business, CD&R may have to sell off assets, such as factories, warehouses or stores, to make a decent return. 

CD&R also has the option of combining its 918 Motor Fuel Group (MFG) fuel forecourts with the 339 owned by Morrisons, opening Morrisons convenience stores on the sites, but that could face scrutiny from the competition regulator. 

Fortress which lost the bid said: “The UK remains a very attractive investment environment from many perspectives, and we will continue to explore opportunities to help strong management teams grow their businesses and create long-term value.” 

Sainsbury’s, UK-second largest supermarket, has in recent months been mooted as another possible target for private equity and investment companies. 

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