Supermarket giant Morrisons rejects £5.5bn takeover bid from US private equity firm

Morrisons has rejected a £5.5bn takeover bid from US private equity firm Clayton, Dubilier & Rice (CD&R).

Following this announcement, CD&R has until 17 July to place another formal bid.

In a statement, the supermarket giant said: “The board of Morrisons evaluated the conditional proposal together with its financial adviser, Rothschild & Co, and unanimously concluded that the conditional proposal significantly undervalued Morrisons and its future prospects. Accordingly, the board rejected the conditional proposal on 17 June 2021.”

Legal & General Investment Management, which has a 1.6% stake in the company said the offer did not add “any genuine value” and voted to reject the approach.

The private equity firm has previously made invested in British discount shop chain B&M. CD&R has also agreed a £2.8bn takeover of UK healthcare group UDG.

Former Tesco Chief Executive Sir Terry Leahy is an advisor at CD&R.

A new wobble in the trolley wars

Dr Gordon Fletcher, retail expert at the University of Salford Business School, comments on the failed takeover of Morrisons and what it means for the supermarket wars.

He said: “Morrisons rejection of a £5.5bn bid from the US private equity group Clayton, Dubilier & Rice is the first salvo in a post-pandemic grocery shakeup. While all the major food retailers have remained open throughout the pandemic, each of them has also faced a range of challenges to their well-honed business models. For Morrisons the challenges have been somewhat different to its competitors. It owns most of its properties as well as much of its own supply chain. Lockdown has brought new and unexpected costs. However, in a world increasingly more sensitive to issues of sustainable food production, origin traceability and fair wages across the supply chain this situation is an enviable asset in the long run.

“Many observers of the proposed takeover have been sensitive to the negative impact of asset-stripping private equity ownership. A criticism that has also become more vocal recently with the failure of Debenhams and the inability for large chains burdened by debt to respond appropriately or quickly to unexpected changes in the market. Of equal concern is the impact of further foreign ownership in the retail sector and the potential pressure this will bring to relax food import restrictions from the US in a post-Brexit Britain.

“A decade ago criticisms of Morrisons focused on its tardiness in keeping up with the market trend for home deliveries. But after buying in US expertise in 2013 the criticism now appears to be reversed. With this first offer there is a real potential for other bidders to come to the table including Amazon. With Morrisons owning the UK’s same day delivery channel through Amazon the retailer is now leapfrogging the competitors by integrating with the familiar 1-Click offering of the world’s largest online department store. A closer connection between Morrisons and Amazon would also be a major challenge to the Sainsburys’ £1.4bn purchase of Argos five years ago. Another big power shift in the UK high street.”

Supermarket sweep as offer of the week for WM Morrison sends shares higher

Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown, said: “It may be Amazon Prime day, but competition from the king of e-commerce hasn’t upset the shopping cart for UK grocers. Instead, the offer of the week for WM Morrison has led to price rises across the sector, with the grocer rising 32% and Sainsbury’s, Tesco and Marks and Spencer also seeing their shares climb higher as speculation swirls about who might be next in line to bid for a slice of the supermarket pie.

“WM Morrison has rejected the initial takeover bid from Clayton, Dubilier & Rice, but there could be others. The rejected offer valued Morrison shares at a 29% premium to their closing price before the bid. The US private equity firm could come back with a better offer, or it could spur others to jump on the conveyor belt and make bids of their own. The expectation of further interest in the sector has led to a spurt of optimism about prospects for the grocers who have been capitalising on the shift to e-commerce.

“Morrison’s is bounding ahead with digital sales, which were up by 113% last quarter. It’s being eyed up for takeover because, despite this expansion, its online business is smaller than its rivals which leaves more room for exceptional growth. There is speculation that Amazon could be the next suitor to come forward as Morrison’s is already a prince in the company’s e-commerce empire, selling ranges via Prime and via the Amazon Fresh bricks and mortar store in West London. Morrison’s owns much of its store estate, which may also been seen as attractive to potential bidders who may see that as an area to cut short term costs through sale, then leasing deals.

“The grocery market might look hot right now, given the surge in online sales over the past year, but there are already indications it’s begun to cool. There was a 5.7% fall in retail food sales in May, as consumers bought fewer groceries and ate out in restaurants once more, as restrictions eased. As shoppers fill fewer baskets, there is likely to be further competition on price which could eat into margins at a time when continued investment is needed to expand online capacity. So, the current supermarket sweep could turn into a disappointing bun fight as grocers battle to win market share.’’