Morrisons shares rocket by more than 30% after it rejected £5.5bn takeover bid from US private equity giant – but staff fear bidding war could leave them jobless
- Morrisons’ board rejected offer from a US-based private equity firm on Sunday
- Supermarket chain said offer ‘undervalued Morrisons and its future prospects’
- The move resulted in the supermarket’s shares increasing by almost a third
- Morrisons is the UK’s fourth-biggest supermarket and employs 118,000 staff
Shares in the UK’s biggest supermarkets soared on Monday morning after Morrisons rejected an unsolicited £5.5bn takeover bid from a US private equity giant.
Morrisons saw its share price increase by around a third soon after markets opened in London amid projections that a bidding war could be sparked after they turned down the propsal.
On Sunday, Morrisons said it had been sent an ‘unsolicited, highly conditional, non-binding proposal’ from Clayton, Dubilier & Rice, a New York-based private equity firm.
It rejected the offer after the board ‘unanimously concluded that the conditional proposal significantly undervalued Morrisons and its future prospects’.
Morrisons is the is the UK’s fourth-biggest supermarket and employs 118,000 staff.
Concerns were expressed online as to what any potential takeover would mean for the supermarket’s staff.
It also sparked fears from the farming community over how the supermarket’s suppliers would be treated if a takeover bid were to be successful.
One concerned individual wrote online: ‘I wonder what this could mean for assets and staff at Morrisons.’
Morrisons rejected a takeover bid from a US private equity giant which saw shares jump by a third (pictured, stock image)
Morrisons said it rejected the bid from Clayton, Dubilier & Rice, a New York-based private equity firm, as it ‘significantly undervalued’ the supermarket (pictured, David Potts, CEO of Morrisons)
The supermarket giant’s share price closed at 178.45p on Friday, valuing the Bradford-based company at £4.3bn.
But after the bid was rejected, it appeared on Monday that shareholders thought CD&R might return with a higher bid.
The original offer was for 230p per share, while shares were selling for 237p.
It means that investors are likely to be betting that a second bid, higher than 237p, will be on its way shortly – a practice known as risk arbitrage. The second bid could come from CD&R or from another suitor.
Any takeover by the firm would mean two of the UK’s ‘Big Four’ supermarkets have fallen into private equity hands, sparking fears for jobs.
Asda was this year bought by the British billionaire Issa brothers and TDR Capital for £6.8billion in a deal heavily financed by debt.
Supermarkets are viewed as attractive investments to buyout firms because they generate a lot of cash and tend to own most of their buildings outright.
The Morrisons takeover bid raised concerns that other supermarket groups could also be sold off to private equity.
It also sparked fears over the future of Morrisons staff members as well as concerns from the farming community over how the supermarket’s suppliers would be treated if a takeover bid were to be successful.
Morrisons are the only UK retailer to buy animals and whole crops directly from over 2,700 British farmers, some of whom have been supplying the supermarket chain for over 30 years.
Paul Gallagher wrote: ‘This is worrying… if Morrisons is bought over, then all the farmers dependent on the company will be “owned” by an American equity company’.
Experts warn that any buy out of Morrisons could pave the way for takeovers of bigger rivals such as Tesco and Sainsbury’s.
Experts warn that any buy out of Morrisons could pave the way for takeovers of bigger rivals such as Tesco (pictured, stock image) and Sainsbury’s
Supermarkets such as Sainsbury’s (pictured, stock image) are viewed as attractive investments to buyout firms because they generate a lot of cash and tend to own most of their buildings outright
In Morrisons’ wake, shares in Sainsbury’s rose by 4.4%, Ocado had gained around 3%, and Tesco was trading up 2.7% shortly after markets opened in London.
BOSSES IN LINE FOR MILLIONS
EXECUTIVES at Morrisons stand to receive multi-million pound payouts if a private equity takeover of the supermarket succeeds.
The grocer has rejected the £5.5billion bid because it was too low.
Under that offer, chief executive David Potts could have been handed nearly £18million for his stock in the company. This includes 3 million shares he owns outright and another 4.6 million he could receive under various company schemes.
Operating chief Trevor Strain could have made £10million and finance boss Michael Gleeson £3million. While Andy Higginson, chairman of Morrisons, could have bagged £291,000 for the shares he owns. The four men all stand to receive even more if CD&R comes back with a higher offer.
Mr Potts, who was awarded a CBE in 2013, received £4.2million last year, including his £850,000 salary and a £1.7million bonus.
The announcement of the bid sparked speculation that these businesses might also draw interest from big investors who have the resources to take the supermarkets private.
Nick Bubb, an independent retail analyst, said: ‘As noted by the FT today, CD&R aren’t going away and we suspect a deal can be done in the 250p-260p area, so it should be a lively day for the sector on the stock market today, with an additional focus on the bid potential for Sainsbury and Tesco as well.’
Any deal for Morrisons or the other supermarkets would follow the £6.8 billion buyout of Asda by the billionaire Issa brothers, which was approved by the competition watchdog last week.
At Asda, the Issas and TDR Capital swiftly announced plans to sell off the supermarket’s petrol forecourts to the brothers’ EG Group after taking over, while its warehouses are set to be sold off and leased back.
Earlier this year, CD&R agreed a £2.8billion takeover of healthcare group UDG and a £308million takeover of plumbing group Wolseley. The buyout spree is being fuelled by the relatively low share prices of many UK businesses and the availability of cheap borrowing due to low interest rates.
The Bradford-based Morrisons chain has about 500 stores and 18 manufacturing sites, owning the freeholds to around 85 per cent of its properties.
It is also the UK’s second-biggest producer of fresh food, locally sourcing everything from bread to beef and seafood.
Since the start of last year, buyout firms have swooped on more than 120 British firms in deals worth over £36billion.
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