Morrisons takeover: Who wants to buy the supermarket and why?

Morrisons agreed a £6.3 billion takeover offer at the weekend but interest from two more investment firms means the UK supermarket could be set for a dramatic bidding war.

Shares in Morrisons soared to a three-year high on Monday morning after investors digested the swathe of takeover interest.

Last month, the group shook off a first £5.5 billion takeover approach from New York private equity firm Clayton, Dubilier & Rice (CD&R).

But on Saturday, Morrisons said it had agreed an offer from a consortium led by PE rival, Fortress.

It confirmed two days later that fellow firm Apollo Global Management had also thrown its hat into the ring, although it has yet to table a formal bid.

UK supermarkets have been buoyed by the pandemic over the past year as sales were boosted by the closure of non-essential shops and hospitality firms.

Nevertheless, Morrisons was among grocers to post lower annual profits after being hit by high pandemic costs.

This has not been enough to put off prospective bidders, and analysts have predicted the takeover tussle could rumble on.

Here the PA news agency answers the key questions about the potential takeover of Morrisons:

– Who currently owns and runs Morrisons?

The Bradford-based retailer was founded by William Morrison in 1899 as an egg and butter stall in Rawson Market.

Morrisons steadily expanded and became a publicly listed business under the leadership of Ken Morrison in 1967, listing on the London Stock Exchange.

It expanded further in 2004 with the £3.3 billion acquisition of rival Safeway which helped to grow the northern-focused retailer further south.

The group has remained publicly owned since 1967, with the firm now largely owned by a raft of institutional shareholders, including Silchester International, Columbia, Blackrock and Schroders.

Morrisons has been led by chief executive David Potts since 2015, alongside chief operating officer, Trevor Strain, and chief finance officer, Michael Gleeson.

Mr Potts would be in line for a roughly £19 million payday were the 254p-per-share move completed and all his share interests paid out.

The company board have backed the offer by the Fortress-led consortium and said they believe it will “support and accelerate our plans to develop and strengthen Morrisons further” if the acquisition goes through.

– Who has agreed to buy Morrisons?

A consortium led by Softbank-owned Fortress is currently in the driving seat to buy the supermarket after it tabled the first firm offer and saw the FTSE 250 firm’s directors back the move.

The group of investors targeting the acquisition also includes Canada Pension Plan Investment Board and Koch Real Estate Investments, the vehicle of the US billionaire Charles Koch.

Fortress – which was bought by Japan’s Softbank for 3.3 billion US dollars (£2.4 billion) in 2017 – has previously invested in grocery retail in both North America and Europe.

In 2019, the private equity firm snapped up UK wine retailer Majestic Wines for about £95 million.

Fortress highlighted that it reversed planned redundancies at Majestic after it bought the business and would look to invest in Morrisons.

– Who are the other potential bidders?

New-York based private equity firm Clayton, Dubilier & Rice made an approach on June 17 for Morrisons in an effort to expand its European retail footprint.

The 43-year-old company is one of the most firmly established investors in the sector and has been advised by former Tesco chief, Sir Terry Leahy, over the past 10 years.

Sir Terry, who has been heavily involved in its approach for Morrisons, helped CD&R secure a 60% stake in discount retail group B&M in 2013.

CD&R is also the owner of forecourt giant Motor Fuel Group (MFG), sparking speculation that it could strike a similar deal to the acquisition of Asda by EG Group founders, the Issa brothers, and private equity backers, TDR Capital.

The firm now has until July 17 to table a formal bid to buy Morrisons, due to UK takeover rules.

On Monday, fellow New York PE firm Apollo became the third firm to reveal its interest in a possible deal.

The asset manager confirmed that it is “in the preliminary stages of evaluating a possible offer for Morrisons” on behalf of investment firms managed by Apollo but is yet to table a formal bid.

Apollo was launched in 1990 and has growth to encompass 15 global offices with about 455 billion US dollars (£328 billion) worth of assets at the end of last year.

Apollo was involved in a bidding process for a major UK supermarket last year as it tried to snap up Asda.

However, the UK’s third biggest grocer was ultimately bought by the Issa Brothers and TDR.

– Why Morrisons and what are the potential plans for the business?

Morrisons appears an attractive opportunity for private equity as its share value had recently sat below its pre-pandemic levels despite strong recent revenues.

Thin margins and rising costs have continued to press down on valuations in the supermarket sector, fuelling regular speculation for potential takeovers.

Nevertheless, Morrisons has significant ownership of parts of its supply chain and a large property portfolio which will appeal to possible buyers.

Neil Wilson, chief market analyst at Markets.com, said: “Owning the bulk of its store estate outright makes it an attractive asset for private equity intent on gearing it up.”

The Labour party and MPs on the Business, Energy and Industrial Strategy committee have raised concerns that the retailer could be stripped of assets in a private equity takeover.

However, Fortress stressed over the weekend that it has not sold any of its freehold or long leasehold properties at Majestic and “does not anticipate engaging in any material store sale and leaseback transactions” at Morrisons.

Sources close to CD&R said, last month, that the firm believes it “shares the values of Morrisons” and recognises the quality of the retailer.

An acquisition could result in some combination between Morrisons and MFG, with Morrisons currently operating fewer convenience and forecourt stores than some of its competitors.

– What next?

Morrisons shares leapt above 266p on Monday, suggesting the investment community believes that a bid higher than the 254p agreed offer is still on the cards.

Many of Morrisons shareholders have remained quiet about the latest moves but top 10 investor JO Hambro said last week it would hope for a 270p per share offer.

The current share price suggest that many traders currently believe the appetite of the three interested parties could spark a bidding war which will result in an offer nearer this price.

CD&R have just less than two weeks to place a firm bid if they wish to buy Morrisons so there are likely to be more updates soon.

There is also the potential that a major retail group could enter the fray with an offer.

Morrisons has a long-standing partnership with US online retail giant Amazon with Morrisons selling groceries through its online platform in the UK.

Amazon has also grown its bricks and mortar retail business in recent years with its acquisition of Whole Foods in 2017 and its recent launch of three Amazon Fresh till-free stores in London.

AJ Bell investment director Russ Mould said: “Strategically, Morrisons has cemented an important relationship as a key supplier and partner to Amazon, and to McColl’s convenience stores.

“Amazon has long been touted as a potential buyer for Morrisons to help give it a much stronger foothold in the UK grocery markets so that’s an obvious name to watch.”