Bidding war ends for Morrisons – but could this just be the beginning for UK market?
Following an auction on 2 October, Clayton, Dubilier & Rice (CD&R) has aqcuired British supermarket giant Morrisons with a £7bn bid.
The Morrisons board is recommending that shareholders accept CD&R’s offer, which values Morrisons at £7.1bn and is a 61% premium to the share price before any offers were made. No decision is final until a shareholder vote is held in mid-October.
CD&R’s bid team is headed by former Tesco CEO Sir Terry Leahy.
He commented: “We are gratified by the recommendation of the Morrisons Board and look forward to the shareholder vote to approve the transaction. We continue to believe that Morrisons is an excellent business, with a strong management team, a clear strategy, and good prospects.”
The shares fell 3.7 % following the announcement.
The US firm CD&R outbid a consortium led by the Softbank-owned Fortress Investment Group in a drawn-out bidding process which began in June. Fortress will now focus on other options within the UK.
Joshua A. Pack, Managing Partner of Fortress, said: “Morrisons is an outstanding business and we wish the company and all those involved with it the very best for the future. 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.”
What will happen next?
Sophie Lund-Yates at Hargreaves Lansdown shares her thoughts on what we can expect to see within the industry in the weeks and months ahead.
The lively bidding war for Morrisons has come to an end, with CD&R trumping Fortress at the final hurdle. The larger offer values Morrisons at a heady £7.1bn, and is the offer recommended by the Board. That price sounds steep but is a reflection of the significant growth opportunities ahead. In particular, the supply and delivery partnerships with Amazon will have caught the attention of potential buyers.
As a bit of an underdog in the UK grocery market, Morrisons makes sense as a potential target – especially when you consider the majority of its stores are owned, not leased, giving the group an impressive asset collection and healthier balance sheet. No decision is final until a shareholder vote in mid-October, however it’s looking increasingly certain the London Stock Exchange is about to lose a hunk of heritage.
While this takeover story might be wrapping up soon, that doesn’t mean we won’t see others. Fortress are clearly interested in what the UK has to offer, and a boom in private equity activity in London this year means they won’t be the only ones. A weak pound and low interest rates mean UK companies could look more enticing now than they have in a while, and further offers for UK businesses can’t be ruled out.