© Reuters. File photo: On January 9, 2003, a shopper left Morrison Supermarket in Bradford, England with her groceries.Reuters/Ian Hodgson
By Kate Holden
LONDON (Reuters)-The share price of British supermarket Morrison hit a nearly eight-year high on Monday as investors hoped that the rejected US private equity group CD&R will return with a higher offer to win a bidding war of US$8.8 billion. Against Fortress.
Morrison’s share price is 272 pence per share, which is much higher than the 252 pence suggested quotation of SoftBank’s Fortress. CD&R must make a counter-offer before next Monday. Investors will vote on Fortress’ bid on August 16.
The battle for the UK’s fourth largest supermarket is the country’s most high-profile upcoming acquisition in a large number of bids and counter-bidding, reflecting the appetite of private equity for UK Plc and the cash-generating capacity of well-run supermarkets.
Clayton, Dubilier & Rice (CD&R) has sparked speculation that it will return to Morrison at a higher offer because it did not withdraw after rejecting an offer of 230 pence per share earlier, but kept its choice right.
It may have to meet Fortress’s commitment to retain the company’s strategy and management, and it can talk about the experience that its senior management will bring, including consultant Terry Leahy and partner Vindi Banga.
Leahy became a senior consultant for CD&R in 2011 and worked for Tesco (OTC:), the largest supermarket in the UK, for 32 years, including 14 years as CEO. Banga is a partner of the American Group and has worked for Unilever (NYSE:) for 33 years, which is a major food and beverage supplier.
The right owner
If CD&R seeks operational cooperation between the supermarket and its own independent gas station and convenience retail operator Motor Fuel Group, it can also justify the higher prices, which may lead to Morrisons branded front yards.
Morrisons’ competitor, Asda, was recently acquired by entrepreneurs Issa brothers and TDR Capital, who merged its gas station with the existing gas business they own.
However, so far, Morrisons has accepted Fortress’s offer. Fortress has received support from Singapore’s sovereign wealth fund GIC, the Canadian Pension Plan Investment Commission and Koch Real Estate Investments.
It describes them as suitable owners for companies with more than 110,000 employees and a deeply integrated supply chain, including their own meat and fish processing plants. Morrison is unique among British supermarkets, and half of the fresh food it sells is made by Morrison.
But Morrison’s major shareholders did not seem to agree, and Silchester and M&G said the offer was too low.
Berstein analyst William Woods said in a report that any buyer who bids higher may have to sell additional assets, such as factories, warehouses or stores, to get a return. “Without the sale of a large amount of assets, it would be difficult for us to see the return on the current offer,” he said.
To pass, the offer requires the support of shareholders who represent at least 75% of the investor’s value at the meeting.
(1 USD = 0.7193 GBP)
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