US private equity group Clayton, Dubilier & Rice has bid to acquire supermarket chain Wm Morrison in a deal that would take Britain’s fourth-largest grocer private, the buyouts group confirmed on Saturday.
CD&R “is considering a possible cash offer”, though there is no certainty an offer will be made, it said in a statement that was prompted by reports by Sky News and the Financial Times.
It did not say how much an offer could be worth, but two people close to the transaction said CD&R had been discussing a bid that would value Morrisons equity in the region of 225 pence per share.
That would mark a 26 per cent premium to its last closing price of 178 pence, which would give it a market value of £5.4bn before the inclusion of £3.2bn of net debt.
The board of Morrisons, which is working with advisers at Rothschild, was meeting on Saturday to discuss the merits of the approach, a person with knowledge of the matter said. It has yet to comment, but another person following the situation closely said the leak of CD&R’s interest had significantly complicated the prospects of a deal.
CD&R is working with Goldman Sachs on its bid, a third person involved added.
Under the UK’s takeover rules, the private equity firm must announce a firm intention to bid, or walk away, by 17 July.
The approach highlights private equity’s growing appetite for UK assets and in particular, supermarket chains.
Buyout groups have announced bids for at least 12 UK-listed companies since the start of this year, as Brexit and the pandemic weigh on share prices. It is the fastest pace of take-private attempts for more than two decades, figures from Refinitiv show.
CD&R has been among the more active private equity firms in the UK market this year, agreeing a £2.8bn deal to buy the UK-listed healthcare services group UDG and a £308m deal for Wolseley, the plumbing business.
The CD&R approach comes as competition regulators this week cleared a £6.8bn deal by the owners of petrol station retailer EG Group, billionaire brothers Mohsin and Zuber Issa and private equity firm TDR Capital, to buy the UK’s third-largest supermarket chain Asda.
CD&R counts Sir Terry Leahy, the former chief executive of Tesco, among its advisers. Andrew Higginson, the current Morrisons chair, worked alongside Leahy at Tesco for many years. It is also an investor in EG Group’s petrol station rival, Motor Fuel Group.
The management team at Morrisons led by chief executive Dave Potts, has attempted to turn around the performance of the business since 2015 by improving pricing and building up its wholesale business, which suppliers convenience stores and petrol stations.
However, the market has not rewarded them. Shares are lower now than they were when Potts took over and have fallen 6.3 per cent over the past year, compared with a rise of 11.5 per cent in the FTSE 100 index of top UK companies in which it was a constituent until earlier this year when it was relegated.
Earlier this month, 70 per cent of shareholders rejected its pay arrangements.
In the year to the end of January, the company reported an 8 per cent increase in same-store sales although total revenue grew only 0.4 per cent to £17.5bn because of sharply lower fuel sales.
Covid-related costs affected profits, with net income rising 0.5 per cent to £96m. It employs 118,000 staff, according to Capital IQ.
Analysts have long speculated that the group might fall to a bidder attracted to its cash generation and, like third-placed Asda, a high proportion of freehold stores.
There has also been speculation that Amazon might acquire the company as a way of entering the UK grocery market at scale. Morrisons acts as a supplier to Amazon Go stores and sells food online to Amazon Prime members.
It is unlikely that another major UK supermarket group would make a move for the group, given that an attempted combination of Sainsbury and Asda was blocked by the country’s competition regulator in 2019.