SIR Ken Morrison In 1952, 53 years after the egg and butter began selling, he took over his father’s stall in Bradford. Soon he ran one grocery store and then many grocery stores. In 1967, Morrisons went public with a 174x oversubscription stake.
Today, the UK’s fourth-largest supermarket chain, and the most luxurious chain store on its budget, is once again in high demand from bidders who are now trying to keep it private again. June 14, Clayton, Dubilier & Rice (CD&R), The American Private Equity Group offered £ 2.30 ($ 3.25) per share. This is a 31% premium on the previous day’s closing price. The board opposed the bid, saying it “significantly underestimates Morrisons and its future outlook.” But on July 3, it accepted a rival offer of £ 2.54 from a consortium led by another private-equity group, Fortress. It rates Morrisons at £ 9.5bn, including a debt of £ 3.2bn.
Under the UK acquisition code CD&R I have until July 17th to make a better offer. Apollo, the third private equity group, is also considering bidding. Industry analysts believe Amazon may also be interested.So economist When it came to the press on July 8, the share price was £ 2.67, 52% higher than before. CD&ROffer.
The fight to buy Morrisons fits in with the broader trends in London’s stock market. In the first half of 2021, we saw record high bids from individual investors, even years after the number of companies listed on the London Stock Exchange declined. Stock prices looked cheap due to the five years of political and currency risk caused by Brexit. The turmoil has largely subsided, but historically the pound sterling is still low, making private equity funds with $ 1.9 trillion in unused capital more attractive.
Still, many are wondering how retail investors can justify such a high premium for Morrisons. One possibility is that they intend to steal assets. The real estate portfolio, which includes 85% of the stores, is estimated to be worth around £ 8 billion. (The fortress says it intends to hang on them as part of it.)
The other is for bidders to spy on more productive routes to increase profits. Bank Barclays’ James Unstead points out that the fortress owns Majestic Wine, a high-street retailer. CD& R I own the Motor Fuel Group, a petrol front yard operator. Either, especially the latter, can be successfully combined with Morrisons, making both more valuable.for CD& RThis means following the path burned by Asda, the UK’s third largest supermarket chain in terms of market share. It was closed to the public earlier this year by the Issa brothers, who also own the petrol vestibule business.
The third possibility is that the public market is seriously underestimating UK food retailers. Investment firm Shore Capital’s Clive Black says they have cut debt and filled holes in pension funds over the years. Larger chains are now generating enviable and enviably stable cash flow, but stock prices have little benefit. Individual investors seem to place more value on them than on the stock market. “If traditional fund managers want to know why UK supermarkets are delisting, they should look in the mirror,” says Black. ■■
This article was published in the UK section of the printed version under the heading “Price War”.