The New York-based private equity group Apollo Global Management is among the potential counter-bidders circling Morrisons after the supermarket group recommended a £6.3bn offer from an American consortium over the weekend.
Shares in Morrisons are expected to surge on Monday following the acceptance of an offer led by the US investment fund Fortress, the owner of Majestic Wine. Apollo has appointed the investment bank Morgan Stanley to advise on a potential offer, while rival buyout firm Clayton, Dubilier & Rice (CD&R) is considering whether to launch a renewed bid after having an offer rejected by the board.
Morrisons, which operates 500 stores and employs about 118,000 staff in the UK, announced on Saturday it would sell to the Fortress-led consortium in a high-stakes deal valuing the company at £6.3bn. Fortress and its partners would also take on debt worth £3.2bn.
After months of secretive talks, Fortress made four proposals before its accepted offer reached a total value of 252p a share, as well as a 2p cash dividend, compared with the retailer’s closing share price on Friday of 240p.
Recommending the offer to shareholders, Andrew Higginson, the chair of Morrisons, said: “The Morrisons directors believe that the offer represents a fair and recommendable price for shareholders which recognises Morrisons’ future prospects.”
But within hours of the announcement, details of a potential counter bid from Apollo were revealed in the Sunday Telegraph. It comes after the investment firm was beaten in a race to buy rival supermarket chain Asda earlier this year, after it was sold to the billionaire Issa brothers for £6.8bn.
The approved Fortress deal announced on Saturday was the second firm offer for Morrisons, dwarfing the £5.5bn bid from CD&R last month, which Morrisons directors rejected on 19 June, saying it “was far too low”.
Despite all the interested parties remaining tight-lipped on Sunday, CD&R, which has the former boss of Tesco, Sir Terry Leahy, as a senior adviser, was said by insiders to have “plenty more petrol in the tank”. It believes that some on the Morrisons board would be more amenable to an increased offer. Under UK stock market rules the rival US investment firm has until 17 July to either make a firm offer or walk away.
It raises the prospect of a three-way battle for the company that until recently was regarded as largely unloved by investors, although it remains to be seen whether the other interested groups will top the Fortress-led offer.
Supermarkets have looked vulnerable to private bidders in recent months after share price falls stemming from higher costs handling the Covid crisis, which cancelled out the benefits from booming sales during lockdowns.
Morrisons is considered attractive because it owns the freehold on about 85% of its properties – including its supermarkets – and for its integrated business approach. It has long-term relationships with its farmers and suppliers as well as its own food manufacturing sites and even its own fishing fleet.
Andrew Gwynn, an equity analyst at the financial firm Exane, said he believedthe Fortress-led bid had a good chance.
“Fortress doesn’t seem to be proposing any aggressive change, with a focus on simply empowering the management team to deliver on their longer-term strategy. The deal is conditional on 75% approval from shareholders. We think that should be achievable at this price range. The deal is very likely to succeed,” he said.
Shareholders, who are yet to approve the takeover, could find their heads turned if another party comes in with a significantly higher offer.
Institutional investor JO Hambro, which owns 3% of the supermarket, said the Morrisons’ board was correct to reject the initial CD&R offer, but indicated it could back a deal at a higher price. “We believe any offer for the group approaching 270p per share merits engagement and consideration,” it said just last week. Before bid interest Morrisons had been trading at about 178p a share, valuing the firm at about £4.3bn.
Meanwhile, farmers groups and the unions have raised the alarm, fearing the takeover will be bad news for their members. Morrisons describes itself as “British farming’s single biggest customer” and works directly with more than 2,200 livestock farmers and 200 growers – some of whom have supplied the company for more than 30 years.
Workers union Unite said it wanted “unbreakable guarantees” on jobs and conditions or it would not cooperate with any sale.
Adrian Jones, the national officer for road transport at Unite, which represents Morrisons’ warehouse and distribution workers, said the company was “unique among UK supermarkets” because it owns its supply chain, unlike other supermarkets which rely more on third-party wholesalers.
Labour’s shadow business minister, Seema Malhotra, said the government must closely scrutinise the takeover bid and called on ministers to work with the consortium to ensure “crucial commitments to protect the workforce and the pension scheme are legally binding, and met”.
If the deal goes through, the bid for the UK’s fourth-largest supermarket would be the biggest private equity deal since the £11bn takeover of Boots in 2007. Saga, the AA and RAC are among the big-name brands that have fallen into the hands of private equity buyers in recent years.
It comes hot on the heels of a takeover of Asda which was backed by private equity group TDR Capital and led by the Issa brothers.