New York bidder Clayton, Dubilier & Rice (CD&R) is gearing up to place its counter-bid to the leading £10bn Fortress offer for Wm Morrison supermarkets before its deadline next Friday.
CD&R planted the seed for the ongoing private equity bidding war for the British supermarket in June, when it placed a 230p per share offer for its takeover.
But this was rejected by Morrisons and soon trumped by a consortium led by SoftBank-backed US private equity group Fortress, who further increased its bid valuing the supermarket chain at almost £10bn, made up of £6.7bn equity and £3.2bn of net debt.
Morrisons accepted CD&R’s request for an extended deadline for the shareholder vote on the deal, and the group now has until August 27 to oust Fortress with a higher bid or walk away.
Key shareholders of the British supermarket had signalled that the Fortress offer was too low, which motivated the buyout group to pre-empt a counter offer from CD&R and raise its bid from 252p to 272p per share.
Now, it is expected that CD&R will have to raise its bid to at least 275p per share – but this could rise to 280p to lock things in.
Sources close to CD&R have said the firm believes it “shares the values of Morrisons” and recognises the quality of the retailer.
Morrisons’ board would likely not have agreed to a deadline extension on the shareholder vote on the takeover if the weren’t relying on a rival offer, according to reports in the Times citing people with knowledge of the matter.
43-year-old CD&R is one of the most firmly established investors in the supermarket 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 per cent stake in discount retail group B&M in 2013.
It is understood that CD&R roughly doubled its initial investment in B&M when it exited in 2018, having banked around £1bn.
Fortress in the lead
The current lead bidding 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.
Following its last increased bid, Fortress said it “remains committed to becoming the new owner of Morrisons and to being a responsible long-term steward of this great British company through the next stage of its evolution.”
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.
The deal underlines the strong appetite among private equity firms to acquire UK listed companies, and Morrisons represented a particularly attractive investment opportunity as its share value sat below its pre-pandemic valuation in June, prior to the takeover-fuelled jump.