Morrisons: Bidding war looms for supermarket as rivals circleon July 5, 2021 at 9:33 am

A US investment firm is considering making a rival offer for Morrisons, days after the UK supermarket agreed to a £6.3bn ($8.7bn) takeover.

Apollo Global said it was considering the move, but no approach has yet been made to Morrisons.

It is the third firm to show an interest in the UK chain in two months, fuelling speculation of a bidding war.

On Saturday, Morrisons accepted an offer by another US investment group led by the owner of Majestic Wine.

The takeover bid – led by US private equity firm Fortress Investment Group – is subject to shareholder approval, but the supermarket group’s directors are recommending it is accepted.

Morrisons is the UK’s fourth largest UK supermarket chain, with nearly 500 shops and more than 110,000 staff.

In a short statement issued on Monday, Apollo said it was “in the preliminary stages of evaluating a possible offer for Morrisons”.

However, it 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.”

Shares in Morrisons surged by 11% on Monday to 269p. That took it well past the 254p per share offered by Fortress over the weekend – itself a 42% premium on the retailer’s share price before the offer period.

Neil Wilson, an analyst at Markets.com, said the offer “indicates investors believe there could be more juice to be squeezed from this particular bidding war”.

“I think there could well be another offer or two and 280p might be seen before it’s a knockout. We’ve talked fairly regularly about the amount of private equity money there is waiting for UK companies, which are cheap versus peers [overseas].”

Over the weekend, Morrisons boss Andrew Higginson said Morrison’s “performance through the pandemic” had improved its standing and enabled it to enter discussions with Fortress from “a hard-won position of strength”.

He said the consortium had a “full understanding and appreciation of the fundamental character of Morrisons”.

Joshua A Pack, managing partner at Fortress, said the group was committed to being “good stewards of Morrisons”.

Last month, Morrisons turned down an offer worth £5.5bn from a different private equity firm, Clayton, Dubilier & Rice (CD&R) , arguing the bid had significantly undervalued the business.

Under UK takeover rules, CD&R has until 17 July to come back with a firm offer. The Takeover Panel is yet to announce the deadline by which Apollo must clarify its intentions in relation to Morrisons.

Analysts have speculated that other private equity groups and e-commerce giant Amazon, which has a partnership with Morrisons, could also join the fray.

You wait ages for a bidder to emerge for one of the UK’s big supermarket chains, then three turn up at once. Speculation that Apollo might be a bidder for Morrisons has circulated since another US private equity firm, Clayton, Dubillier & Rice CDR), lodged the first takeover offer for the supermarket chain a fortnight ago.

Morrisons then wrong-footed the market by announcing on Saturday morning that it had agreed a deal with a group of investors led by one of CDR’s rivals, Fortress Investment. Now Apollo has indeed joined the fray, saying it is considering its own offer. While it has not yet approached the Morrisons’ board, a statement to the stock exchange confirming an interest makes it clear this is more than just a passing fancy.

The market clearly expects a bid battle. This morning Morrisons shares were up 11% to 269p, well above the price agreed between the board and Fortress of 254p a share. CDR may return, Apollo is waiting in the wings, and some have still not given up hope of Amazon joining the fray. At the moment, however, Fortress, with a recommendation from the Morrisons’ directors tucked into its back pocket, remains the favourite.

What now are the chances of copycat bids for the other two large quoted UK supermarket chains, Tesco and J Sainsbury? Tesco might be simply too big for a private equity raider – its current market capitalisation is nearly £18bn, nearly three times the size of the Morrisons deal. And at Sainsbury’s there is a potential blocking shareholder in the shape of Qatar Holdings, which still owns 15% of the chain. If the Qataris can be brought on side, Sainsbury’s could, perhaps, become a takeover target.

Large private equity firms have been targeting UK supermarkets, which they view as undervalued and attractive due to their large property portfolios.

Last year, Apollo lost out on buying Asda, Britain’s third largest supermarket group, to the Issa brothers and TDR Capital.

As part of its offer, Fortress has made clear commitments not to sell off any of Morrisons’ property and vowed to protect workers’ jobs and pay.

Nevertheless, Labour urged ministers to ensure the group’s commitments “are legally binding, and met”. The Unite union said it would not co-operate with any sale without “unbreakable guarantees” on jobs and conditions.

Catherine Shuttleworth, head of retail research agency Savvy, told the BBC’s Today programme: “Quite often private equity will look at the potential for growth, and what is there to do in these businesses. And it may be they think there’s a lot more to go there and they could do something with it.

“It may be they are complementary to other businesses they’ve got and they believe they can put something into those businesses that will drive profit.”

She said whoever ended up buying the chain was likely to make changes. However, they would be expected to stick to their commitments under UK takeover rules.