Shares of Bradford-based supermarket giant Morrisons rose another 11% on Monday to around £2.67 amid news that a third takeover approach from the private equity industry may emerge for the company — this time from Apollo Global Management.
That development followed Saturday’s statement from the board of Morrisons that it agreed to a £2.54 per share cash takeover offer from a trio of investors led by Fortress Investment Group which values the share capital of the Bradford firm at £6.3 billion.
The proposed deal with Fortress, the Canada Pension Plan Investment Board (CPP Investments) and Koch Real Estate Investments exceeds an earlier £5.5 billion cash takeover approach from US private equity firm Clayton, Dubilier & Rice (CD&R) pitched at £2.30 a share, which Morrisons rejected.
Under the terms announced in Saturday’s statement, Morrisons shareholders, who must approve the deal, would receive £2.52 in cash and a 2p special dividend for each Morrisons share.
While Morrisons shareholder abrdn said the Fortress-led offer is “good value”, other shareholders are expecting a higher offer now that Morrisons shares are trading about 13p above the agreed deal price.
“I think the Morrisons deal is good value, I think it’s a smart thing to do,” abrdn CEO Stephen Bird told Reuters.
But another shareholder told London newspaper The Times: “My view is that 254p undervalues Wm Morrison, but with three private equity groups interested it is unlikely to be the final bid.”
abrdn’s shareholdings in Morrisons are as a passive, or index-tracking, investment, an abrdn spokesperson said.
Legal & General Investment Management (LGIM), a top ten shareholder in Morrisons, said the takeover “is leading to more questions than answers” and called on Morrisons to give investors more information about its huge property estate — thought to be a major attraction for the private equity firms.
“As responsible stewards of our clients capital, it is important that the company isn’t taken over for the wrong reasons,” said Andrew Koch, a senior fund manager at LGIM, in a statement.
“If an acquirer makes strong returns this should come from making the company a better business.
“It should not come from buying its property portfolio too cheaply, levering the company up with debt, and potentially reducing the tax paid to the Exchequer.”
In a stock exchange statement, Apollo said: “Apollo Global Management, Inc. notes the recent press speculation in relation to Morrisons and confirms that it is, on behalf of certain investment funds managed by it, in the preliminary stages of evaluating a possible offer for Morrisons.
“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.
“In accordance with Paragraph 4(c) of Appendix 7 of the Code, the Panel will announce the deadline by which Apollo must clarify its intentions in relation to Morrisons.
“A further announcement will be made as appropriate.”
AJ Bell investment director Russ Mould said: “We’ve now got confirmation of three parties interested in Morrisons and fear of missing out could attract further interest from private equity or trade buyers.
“So why are they all moving now, when Morrisons’ share price pre-bid had been plodding along in roughly the same 170p to 185p range since September 2020?
“There was plenty of time for suitors to make their move when it was clear that Covid vaccines were successful and would help to reopen society.
“Morrisons’ strategy of being a strategic supplier to Amazon and McColl’s was also well in motion, and it had proved to be a resilient supermarket operator during the pandemic.
“We knew all this in 2020 and it’s taken until mid-2021 to see bid action.
“Perhaps interested parties only made their move once they could see that UK assets were becoming more attractive to overseas investors.
“Private equity firms have been sitting on oodles of cash for a long time, known as dry powder in the industry, and they now look intent on going on a spending spree.
“Food retail is not an easy sector in which to make money and competition is only getting tougher.
“It will be interesting to see if Morrisons’ new owner, assuming a bid is successful, slashes the supermarket’s prices to gain market share.
“However, if it was that easy, widespread price cuts would have already been pushed through.
“At the end of the day, there is a balance between trying to attract customers and making sure the business still makes a profit.
“Morrisons doesn’t want its stores resembling a jumble sale with pallets acting as shelves and minimal staff.
“It wants customers to have a good shopping experience and feel as if they are buying decent quality produce – and to do that, it cannot afford to be in the race to the bottom.”
Fortress is an independently-operated subsidiary of SoftBank Group.
The Fortress-led offer represents a premium of 42% to the closing price of £1.78 of Morrisons shares on June 18, 2021, before the approach from CD&R.
The Fortress-led deal would value Morrisons at £9.4 billion after including net debt and leases worth £3.2 billion.
Fortress said it intends for Morrisons to continue to operate as a standalone business, with its head office and head office functions remaining in Bradford, led by the Morrisons management team.
Fortress confirmed that the existing employment rights, including existing pension rights of the management and employees of Morrisons, would be “fully” safeguarded in its proposal.
In particular, Fortress said it is “fully supportive of Morrisons’ recent pay award of at least £10 an hour for all Morrisons colleagues in stores and manufacturing sites, which Fortress views as an important and appropriate recognition of their contribution to Morrisons.”
The Fortress group said it does not intend to make any change to the benefits provided by the Morrisons Pension Schemes.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: “With yet another private equity buyer putting W M Morrison at the top of their shopping list, shares surged by 11% in early trading as investors speculate about further bids being put on the forward.
“W M Morrison’s board has recommended shareholders accept the £6.3 billion takeover bid from the Fortress backed consortium, so it’s right at the front of the queue, ready to pay.
“But now Apollo Global Management is heading up the aisle, confirming its interest for Morrisons, although it hasn’t yet made a formal bid.
“Initial bidders Clayton, Dubilier & Rice, may still come back to the tills to make a better offer, after their first approach was rebuffed.
“With a trio of hungry firms circling, it shows there is a big appetite for a bite of the UK supermarket sector.
“W M Morrison is seen as a bargain compared to overseas peers, with its deep integrated supply chain and the fact that it owns much of its store estate.
“Morrisons is bounding ahead with digital sales, which were up by 113% last quarter.
“The company is already a prince in Amazon’s e-commerce empire, selling ranges via Prime and via the Amazon Fresh bricks and mortar store in West London, which gives it added reach.
“The tentacles of W M Morrison expand across multiply supply chains where innovative products are in development.
“As the UK’s second largest food manufacturer, a huge number of farmers and producers are reliant on the grocer, not to mention the staff employed at its stores and factories, so any private equity bid is being met with suspicion by unions, fretful that parts of this support network could be dismantled.
“Already Morrisons has moved to try and assuage concerns, by reportedly writing to some members of parliament saying that Fortress will continue to place a very significant emphasis on the wider responsibilities of ownership.
“There certainly will be relief that Fortress has no plans yet to strip Morrisons of its assets – and sell off chunks of its store estate, which was one of the initial main concerns.”
Any takeover proposals for Morrisons are a “commercial matter” for the companies involved, a spokesman for UK Prime Minister Boris Johnson said.
“It remains a commercial matter for individual businesses as to how they’re structured and funded so it wouldn’t be for me to comment on specific firms,” the spokesman said when asked if the government had looked at possible intervention in any deal.