US firms battle for Morrisons ownership

Morrisons has agreed to a £6.3 billion offer from a group of investors including Fortress Investment Group on Saturday, topping last month’s unsolicited £5.5 billion takeover bid from Clayton, Dubilier & Rice (CD&R) by £1.2 billion.

The deal must be ratified by shareholders and could yet be overtaken by a rival bid, but the supermarket group's directors are recommending it is accepted.

US asset manager Apollo Global has also announced interest in making a bid, though they have not yet made an official offer.

The supermarket chain’s stock rose 11.3 per cent this morning on reports of the third player joining the bidding war.

Fortress, which is an independently run subsidiary of Japanese conglomerate Softbank, made the offer in partnership with Canadian pension fund CPPIB and a unit of Koch Industries.

Shareholders are set to receive 252p per share and a 2p special dividend from the Fortress-led deal, if it is formally agreed.

The deal would be the largest private equity acquisition of a UK retailer since the £12.4 billion takeover of Boots by US private equity firm KKR in 2012.

Fortress is also set to take on 3.2 billion pounds of Morrisons’ debt as part of the deal.

Morrisons’ shareholders are set to vote on whether the takeover will go ahead at the next general meeting.

Morrisons is currently the UK’s fourth-largest supermarket chain and has 110,000 employees.

In addition to its 497 Morrisons stores, the supermarket also claims to be the UK’s second largest fresh food manufacturer, operating 18 food manufacture sites.

Fortress, which also owes Majestic Wines, promised it won’t change employee benefits including the pension scheme and the £10 minimum wage for all employees.

Private equity has a significant foothold in the UK supermarket industry; the private equity firm TDR Capital acquired Asda from Walmart in a £6.8 billion deal in partnership with the billionaire Issa brothers in October 2020.

"We have looked very carefully at Fortress' approach, their plans for the business and their overall suitability as an owner of a unique British food-maker and shopkeeper with over 110,000 colleagues and an important role in British food production and farming," said Morrisons chairman Andrew Higginson. "It's clear to us that Fortress has a full understanding and appreciation of the fundamental character of Morrisons."

“This signals the biggest shakeup in the UK grocery sector for over a decade,” said Richard Lim, chief executive of research consultancy Retail Economics. “The grocery sector is transitioning through a period of enormous change as the impact of the pandemic has shifted buying behaviour.”

“Navigating the fast-paced change in market dynamics, customer behaviour and the pressures on the food supply chain in a post-Brexit environment will be no easy feat.”

He added: “Success will hinge on the new owners gaining the support of experienced key members of the leadership team to execute on the future strategy.”

“We are seeking urgent meetings with Morrisons’ current management and the prospective new owners to ensure that our members’ interests and the long-term future of the business are protected throughout this process,” said Joanne McGuinness, national officer of the shopworkers’ union Usdaw. “In the meantime we are providing our members with the support and advice they need through this period of uncertainty.”

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