Morrisons takeover: retailer could face bidding war

By James Ridler contact

- Last updated on GMT

Morrisons's board has unanimously agreed to the terms of the £9.5bn takeover led by Fortress
Morrisons's board has unanimously agreed to the terms of the £9.5bn takeover led by Fortress

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Morrisons faces a potential bidding war after Apollo Global Management announced it was considering a bid following the retailer's announcement that it had approved an offer led by US-based Fortress Investment Group.

Apollo issued a stock exchange announcement this morning (5 July) stating: "Apollo Global Management, Inc. (together with its subsidiaries) notes the recent press speculation in relation to Morrisons and confirms that it is, on behalf of certain investment funds managed by it, in the preliminary stages of evaluating a possible offer for Morrisons.  

"No approach has been made to the board of Morrisons. There can be no certainty that any offer will be made, nor as to the terms on which any such offer might be made."

Morrisons announced on 3 July that its board had 'unanimously' agreed to the terms offered by Fortress, CPPIB, and Koch Real Estate Investments, which valued the business at 254p-per-share – about £6.3bn. The total £9.5bn deal would also include payment of net debt of £3.2bn.

Higginson: 'appreciation of character of Morrisons'

Commenting on the offer, Morrisons chairman Andrew Higginson said: “It’s clear to us that Fortress has a full understanding and appreciation of the fundamental character of Morrisons. This, together with the very clear intentions they have set out today, has given the Morrisons directors confidence that Fortress will support and accelerate our plans to develop and strengthen Morrisons further.

“Fortress, CPP Investments and KREI all have strong track records and a long-term approach to investing. Morrisons has a rich history and a special culture and I am convinced that with the long term support of Fortress, the business will continue to prosper in the future.”

Higginson's comments follow Morrisons' rejection of an approach by Clayton Dubliner & Rice at 230p per ordinary share.

Investment in vertical model

Should the Fortress deal finally go through, Morrisons would continue to operate as a standalone business and continue to be run from its head office in Bradford, according to Fortress. Planning ahead, it said it would continue to invest in the retailer’s vertically integrated model, which it described as the basis for continued long-term growth.

Fortress managing partner Joshua Pack added: “We fully recognise Morrisons’ rich history and the very important role Morrisons plays for colleagues, customers, members of the Morrisons Pension Schemes, local communities, partner suppliers and farmers.

“We are committed to being good stewards of Morrisons to best serve its stakeholder groups, and the wider British public, for the long term.”

Julian Wild, corporate finance director at legal firm Rollits that the Morrisons sale was an almost certain outcome, with little to no serious resistance from a management team bitter that had its bonus plan rejected by shareholders at last month’s annual general meeting.

‘Extracting greater value’

“The predators circling Morrisons clearly think they can manage the business better than the existing team and extract greater value for themselves from the company’s considerable property portfolio,”​ he continued.

“No doubt shareholders will vote with their feet and take the best offer. Almost certainly there is a higher bid around the corner.” 

Wild argued that there was no regard for customers or employees in the deal and that the higher ups were only interested in value extraction.

“The days of public companies in the food sector are rapidly diminishing,” ​he added. “It will be interesting to know what rewards management have on exiting the business. 

“Any suggestion that Sir Ken ​[Morrison’s] legacy is being preserved is complete nonsense. That disappeared the second he left.” 

Chris Elliott, head of market insights at Edge by Ascential, described that deal as good for both sides and was quick to point out Fortress’s track record of support for the grocery industry – referencing its investment into grocery chains Albertsons, A&P and Circle K in the US.

Potential bidders

Questions still remained surrounding other rivals looking to outbid Fortress.

“With Apollo considering a bid, there is still one unanswered question of whether Amazon will enter the fray,”​ said Elliott. “Amazon and Morrisons have had a partnership since 2016 and there has always been speculation that Amazon would bid for the supermarket to significantly expand its grocery offering.

“However, more than five years later its has yet to submit an offer and with a bidding war on the horizon, it seems unlikely it will choose this moment to strike. However, if Amazon is looking to enter the market its option are running short, with Asda sold last year and Tesco’s huge valuation.

“It may then feel the pressure to bid but given its acquisition of Whole Foods in the US, it may be looking for a more premium retailer and while it could be tricky, Sainsbury’s is arguably now its best option if it wants to enter the market via a takeover.”

Jobs guarantee

Meanwhile, workers union Unite has called for urgent talks with the retailer to guarantee workers’ jobs and pay in the ‘stampede’ for a sale.

The union is warned that without 'unbreakable guarantees' on jobs and conditions, it would not cooperate with any sale.

Unite national officer for road transport Adrian Jones said: “We won’t allow another takeover of a strong UK business see the workers trampled over as the boardroom and shareholders stampede towards their bonanzas.

“Morrisons is unique among UK supermarkets in that is owns its supply chain, from the farm to the warehouse. Morrisons workers have made this business strong and profitable - they deserve to have their dedication rewarded by the owners.”

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