Morrisons has accepted a £6.3bn takeover bid from a new group of funds led by affiliates of SoftBank-backed Fortress, the firm announced this morning.
Morrisons shareholders will receive 254p a share, comprising 252p in cash and a 2p cash dividend.
The group is headed by Fortress Investment Group, an American investment management company which has ties with Japanese conglomerate SoftBank, and included Canadian pension fund CPPIB and a unit of Koch Industries, KREI.
The total value of the deal is £9.5bn, with the group valuing Morrison’s equity at £6.3bn and including £3.2bn of net debt under the takeover.
The deal will be financed with £5.75bn of debt, underwritten by HSBC and the Royal Bank of Canada. Law firm Ashurst is advising Morrisons on the deal.
The buyers are using £3bn in equity to acquire the business, with Fortress putting up half and the remainder split between CPPIB and Koch.
Morrisons has spent over half a century as a publicly listed company having listed on the London Stock Exchange in 1967. The supermarket chain entered the FTSE 100 for the first time in 2001.
Its share price was down 0.5 per cent to trade at 239p on Friday.
The agreement comes after the supermarket chain rejected an unsolicited offer of 230p-per-share from private equity group Clayton, Dubilier & Rice. The company’s share price shot up 28 per cent after news of the takeover offer broke, but has since pared back gains.
The company is the UK’s fourth largest supermarket, employing nearly 118,000 people and running nearly 500 stores, most of which it owns outright.
Andrew Higginson, Morrisons chair, says: “We have looked very carefully at Fortress’ approach, their plans for the business and their overall suitability as an owner of a unique British food-maker and shopkeeper with over 110,000 colleagues and an important role in British food production and farming.”
“It’s clear to us that Fortress has a full understanding and appreciation of the fundamental character of Morrisons” he added.
The deal underlines the strong appetite among private equity firms to acquire UK listed companies.
Richard Lim, CEO of Retail Economics, says: “This signals the biggest shakeup in the UK grocery sector for over a decade. The grocery sector is transitioning through a period of enormous change as the impact of the pandemic has shifted buying behaviour.
“Navigating the fast-paced change in market dynamics, customer behaviour and the pressures on the food supply chain in a post-Brexit environment will be no easy feat.”
“Success will hinge on the new owners gaining the support of experienced key members of the leadership team to execute on the future strategy. This will be critical given the pace of change sweeping through the industry. However, the shift towards online grocery shopping, the growth of rapid delivery and the cross-over with the takeaway market presents lucrative opportunities if the transition of ownership becomes seamless.”
Who are the buyers?
Fortress is owned by Japan’s SoftBank, which purchased the company in 2017 for $3.3bn.
It was founded in 1998 by a trio of men including Wesley Edens, and has experience in the supermarket sector, investing in the US-based supermarkets Albertsons and Fresh & Easy previously.
The company owns UK wine retailer Majestic Wine. It manages around $53.1bn in assets and is renowned for its credit and distressed investing work.
Fortress manages assets on behalf of over 1,800 institutional clients and private investors worldwide across a range of credit and real estate, private equity and permanent capital investment strategies.
The Canadian Pension Plan Investment Board was established in 1997. As of March 2021, it manages £292bn of assets and it invests funds transferred to it by the Canada Pension Plan.
KREI is part of Koch Industries, an American multinational company which is one of the largest privately held businesses in the US.
Humble beginnings in Bradford
William Morrison first started the company from a stall in Bradford Market in 1899.
His son, Sir Ken Morrison, took over the stalls in 1952. Under his leadership, the company opened its first supermarket in 1961 in Bradford.
Morrisons became a public company in 1967. The share offer was 174 times over-subscribed as more than 80,000 investors try to purchase shares. The firm entered the FTSE 100 for the first time in 2001.
Sir Ken led the acquisition of fellow British supermarket chain Safeways in 2004. He stepped down in 2008 after heading the company for 55 years, before passing away in 2017.
What happens next?
Although the supermarket group’s directors have recommended approving the deal, it still needs to pass a shareholder vote before it is finalised.