U.S. private equity group Clayton, Dubilier & Rice has made an offer to acquire supermarket chain Wm Morrison in a deal that would deprive Britain’s fourth-largest grocer, the buyout group confirmed on Saturday.
CD&R “is considering a possible cash offer,” although there is no certainty that an offer will be made, he said in a statement inspired by reports from Sky News and The Financial Times.
He did not say how much an offer might be worth, but two people familiar with the transaction said CD&R had discussed an offer that would value Morrisons’ equity in the region of 225 pence per share.
This would represent a 26% premium over its last closing price of 178 pence, giving it a market value of £ 5.4bn before the inclusion of £ 3.2bn of net debt .
The Morrisons board, which works with Rothschild advisers, was meeting on Saturday to discuss the merits of the approach, said a person with knowledge of the matter. He has not yet commented, but another person who is following the situation closely said the flight of interest from CD&R had significantly complicated the prospects for a deal.
CD&R is working with Goldman Sachs on its offer, added a third person involved.
Under UK take-over rules, the private equity firm must announce its firm intention to bid, or withdraw, by July 17.
The approach highlights the growing appetite for private equity for UK assets and in particular supermarket chains.
Buyout groups have announced offers for at least 12 UK listed companies since the start of this year, as Brexit and the pandemic weigh on stock prices. This is the fastest pace of private withdrawal attempts in more than two decades, according to figures from Refinitiv.
CD&R has been one of the most active private equity firms in the UK market this year, reaching a £ 2.8bn deal to buy UK listed healthcare group UDG and a deal £ 308million for Wolseley, the plumbing company.
The CD&R approach comes as competition regulators this week cleared a £ 6.8 billion deal between the owners of gas station retailer EG Group, billionaire brothers Mohsin and Zuber Issa and the capital firm – TDR Capital investment, to purchase the UK’s third largest supermarket chain, Asda.
CD&R counts Sir Terry Leahy, the former CEO of Tesco, among its advisers. Andrew Higginson, the current president of Morrisons, worked alongside Leahy at Tesco for many years. It is also an investor in EG Group’s gas station rival, Motor Fuel Group.
Morrisons management team, led by Managing Director Dave Potts, has attempted to turn around the performance of the company since 2015 by improving prices and expanding its wholesale business, which provides convenience stores and retailers. gas stations.
However, the market did not reward them. Shares are lower today than they were when Potts took control and have fallen 6.3% in the past year, compared to an 11.5% rise in the FTSE index 100 of the top UK companies it was a part of until early this year, when it was relegated.
Earlier this month, 70 percent of shareholders rejected its terms of remuneration.
In the year that ended at the end of January, the company reported an 8% increase in same-store sales, although total revenue only increased 0.4% to 17, £ 5 billion due to sharply declining fuel sales.
Costs related to Covid affected profits, with net profit rising 0.5% to £ 96million. It employs 118,000 people, according to Capital IQ.
Analysts have long speculated that the group could face a bidder attracted by its cash generation and, like Asda, third, a high proportion of freehold stores.
There has also been speculation that Amazon may acquire the company in order to enter the UK grocery market on a large scale. Morrisons acts as a supplier to the Amazon Go stores and sells food online to Amazon Prime members.
Another major UK supermarket group is unlikely to make a move for the group, given that an attempt to combine Sainsbury and Asda was blocked by the country’s competition regulator in 2019.