Morrisons: Supermarket agrees £6.3bn takeover

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Supermarket chain Morrisons has accepted a £6.3bn ($8.7bn) takeover bid by a US investment group led by the owner of Majestic Wine.

Last month, the supermarket group turned down an offer from a different firm, saying it had significantly undervalued the business.

Morrisons chairman, Andrew Higginson, said the new offer was fair, and the chain would “continue to prosper”.

Morrisons has nearly 500 shops and more than 110,000 staff in the UK.

The deal is subject to shareholder approval but the supermarket group’s directors are recommending it is unanimously voted for.

The takeover is led by US private equity group Fortress Investment Group.

Under the terms of the deal shareholders will receive 254p per share – which Morrisons said was a 42% premium on its share price before the offer period – brought about with the disclosure of the rejected offer.

The UK’s fourth largest supermarket group turned down the bid worth £5.5bn from Clayton Dublier & Rice in June.

Mr Higginson said the supermarket’s “performance through the pandemic” had improved its standing and enabled it to enter discussions with Fortress from “a hard-won position of strength”.

He said it was clear to the supermarket’s directors that Fortress had a “full understanding and appreciation of the fundamental character of Morrisons”.

BBC business correspondent Katy Austin said discussions had been going on for some time and that she understood that a series of commitments – including on pay and property – had been significant in the Morrisons board’s decision.

Joshua A Pack, managing partner at Fortress, said the group was committed to being “good stewards of Morrisons”.

Fortress’s bid is backed with funding by the Canada Pension Plan and Koch Real Estate Investments – part of Koch Industries.

Russ Mould, investment director at stock broker AJ Bell, said the American investors may have considered Morrisons as being “unloved, under appreciated and therefore under valued” meaning they thought they were getting a bargain.

“The company is profitable, has very limited debt, it’s got a good business model and the shares have done very little for five or six years,” he said.

Mr Mould added that Fortress had been clear in its statement that it did not plan to sell any of its real estate which he thought was aimed at reassuring staff and wider society that this would not be a case of asset stripping by a private equity firm.

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”.

Richard Lim, chief executive of research consultants Retail Economics, said the deal “signals the biggest shakeup in the UK grocery sector for over a decade” as the industry grapples with changes brought by the pandemic and post-Brexit supply chains.

“The shift towards online grocery shopping, the growth of rapid delivery and the crossover with the takeaway market presents lucrative opportunities if the transition of ownership becomes seamless.”

Adam Leyland, editor-in-chief of trade publication the Grocer, said the offer was significant for the industry and said supermarkets had long been undervalued by the stock exchange when they were “safe as houses” as businesses.

He said the nature of the way a purchase was made was important and said the Morrisons deal, in which he said the consortium planned to “back the business”, was in contrast to the Issa Brothers buyout of Asda.

In that deal a large amount of the £6.8bn purchase price was met by borrowing in what is know as a leveraged buyout.

Morrisons started life as a market stall in Bradford in 1899 but it was not until 1961 that the first supermarket store opened under the name.

In 2004 the group bought rival grocer Safeway for £3bn, giving it a bigger slice of the market in southern England.