Shares in Wm Morrison (MRW) jumped 11% to a 12-month high of 269p after it was revealed over the weekend that the board had recommended a £6.3 billion takeover offer from a consortium led by Softbank-owned Fortress Investment Group, trumping the £5.5 billion offer from Clayton, Dubilier & Rice which was rejected last month.
However, before the stock had even opened, a third private equity firm announced that it was also tabling a takeover offer, potentially triggering a bidding war the UK’s fourth-largest supermarket chain by market share.
Apollo Global Management, which last year missed out on buying Asda, the UK’s number three grocery chain by market share which was sold to buyers backed by TDR Capital for £6.8 billion, said it was ‘in the preliminary stages of evaluating a possible offer for Morrisons’.
Under the Takeover Code, CD&R has until 17 July to make a counter-offer for Morrisons, while Apollo - which in its first quarter results said it had almost $50 billion of ‘dry powder’ available for investment - has not yet been set a deadline to make a firm bid.
‘GOOD STEWARDS’
The Fortress-led offer is pitched at 254p per share in cash including a 2p special dividend, equal to 8.3 times underlying operating earnings for the year to the end of January and a 42% premium to the price before CD&R made its opening offer.
The consortium says it is ‘committed to being a good steward of Morrisons through the next stage of its evolution and will support Morrisons and its employees in executing management's existing strategy’.
It also says it ‘recognises that Morrisons' relationship with its customers forms a central part in the fundamental character of the Morrisons business and that listening carefully to customers and improving and enhancing the shopping trip is a central priority for the Morrisons business’.
However, as AJ Bell investment director Russ Mould points out, ‘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.
‘If it was that easy, widespread price cuts would have already been pushed through’ adds Mould.
