Private equity giant Clayton, Dubilier & Rice (CD&R) is poised to kick off a bidding war for Morrisons amid mounting opposition to the £6.3 billion offer on the table for the grocer from a consortium led by American buyout rival Fortress.
CD&R is understood to have been lining up equity and debt financing for a counterbid that could come as soon as this week. Should it win the auction, CD&R plans to open a chain of Morrisons convenience stores at the 900-plus petrol stations operated by Motor Fuel Group, which it has owned since 2015.
CD&R, advised by former Tesco boss Sir Terry Leahy, is also understood to be focusing on how it can use excess space in Morrisons’ supermarkets more imaginatively. The firm intends to work alongside the chain’s executive team, led by chief executive David Potts.
Silchester, Morrisons’ biggest shareholder with a 15.1 per cent stake, rocked the company last week when it said it was not minded to support the Fortress offer. It criticised the board for not allowing more time for higher competing offers to emerge. Two other top 20 shareholders — JO Hambro and M&G — also said the 252p-a-share offer undervalued the supermarket chain. CD&R has until August 9 to table an offer.
The stage is set for a bidding war. Fortress has enlisted investment giant GIC, Singapore’s sovereign wealth fund, to join its consortium, which is already backed by Canadian pension fund CPPIB and a division of the billionaire Koch family empire. GIC has committed itself to contributing only £100 million to the consortium’s war chest but is on hand to provide more firepower to combat CD&R. Fortress has also held talks with private equity giant Apollo.
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Senior City sources said other private equity firms and family offices had also been running the rule over Morrisons. A source close to one suitor said there were likely to be multiple incremental bids, with the potential for the eventual price to hit 290p a share. Morrisons shares closed at 264p on Friday.
A higher price would make significant sales of Morrisons’ supermarkets, distribution centres and manufacturing plants more likely by the buyer.
Analysts at Bernstein said last week that even at the price currently being offered, it was hard to see how Fortress could make an acceptable return without substantial asset sales.
As part of its offer, Fortress said that it did not anticipate carrying out material sale-and-leaseback transactions on Morrisons’ 497 supermarkets, but added that it would explore a sale of its 339 petrol stations. The competition authorities would probably force CD&R to dispose of some petrol forecourts.
CD&R will seek to drum up support for its bid by pointing to its stewardship of discount retailer B&M — where it installed four board members including Leahy as chairman — and helped the discounter chain more than double underlying profits over a four-year period. B&M’s value has doubled since CD&R and its other owners floated the business in 2014.
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B&M’s owners, the Arora brothers, hoped that CD&R would give them the expertise to expand across Europe, but an €80 million acquisition of the German discounter Jawoll proved a disaster. The German chain, bought shortly after CD&R took ownership of B&M, was offloaded for €12.5 million (£10.7 million) last year after years of poor performance.
