Clayton, Dubilier & Rice’s takeover of British supermarket Morrisons has been postponed to next year, as lenders push back on the massive debt package that the US private equity firm is using to finance the buyout to wait out market volatility.
In what represents the UK’s biggest buyout in more than a decade at a £9.95bn enterprise value, banks including Goldman Sachs and BNP Paribas were due to start financing a £6.4bn syndicated bond and loan financing for the deal in November.
But this has now been put on ice until next year, Bloomberg first reported. Morrisons declined to comment.
The deal is still going ahead unchanged, but while investors swarmed to buy the bonds and loans financing the Issa brother’s acquisition of Asda earlier this year in a high yield market, they are now facing increased volatility from concerns over the new omicron Covid variant, rising interest rates, and inflation gaining ground.
According to Mark Benbow, a high yield fund manager at Aegon Asset Management, the pushback is “not a big surprise” for the market, who will be watching how the Covid variant and Christmas supply chain issues play out in the UK.
“Since the Asda buyout earlier this year, the cost of borrowing money for financing the deal has gone up,” Benbow tells City AM.
“They’ll be hoping that with the passage of time, the cost of debt for UK supermarkets will fall a bit. But it’s not a problem with the deal – they’re just waiting for the right market conditions.
“If anything, it shows that CD&R have faith that the business will come through into the new year unscathed, otherwise they’d hold their nose and just print now.”
In addition to the debt financing, CD&R has funded the remainder of the deal with more than £3.4bn of equity, adding a further guarantee to investors for the acquisition.