Morrison backs CD&R’s winning $9.5bn takeover bid

London — WM Morrison Supermarket’s board accepted a £7bn offer from Clayton Dubilier & Rice (CD&R) after it outbid Fortress Investment Group in a rare auction to determine the winner of a private equity bidding war for Britain’s fourth-largest grocer. 

The board unanimously recommended CD&R’s 287 pence-a share final offer to investors. It “represents excellent value for shareholders while at the same time protecting the fundamental character of Morrisons for all stakeholders,” the company said in a statement on Saturday evening. The offer is a 61% premium to Morrison’s share price before takeover interest was revealed.

Morrison’s endorsement of CD&R comes after the US private equity firm had earlier on Saturday topped Fortress’s 286 pence-a-share offer in a bidding contest run by the Takeover Panel, the body that oversees UK acquisitions.

CD&R’s victory clears the path for what will be Britain’s biggest take-private deal in more than a decade, according to data compiled by Bloomberg. Morrison attracted intense buyout activity this summer, with bidders drawn to a well-run and cash-generative business with a valuable real estate portfolio of nearly 500 stores across Britain. 

Shareholders will have the final say when they vote on the deal on October 19. If investors approve the transaction, it will bring to an end more than half a century on the public market for the grocer founded in 1899 by William Morrison as an egg-and-butter stall in Bradford in the north of England. 

It will also mark the return of Terry Leahy, a former CEO of Tesco, Britain’s largest grocer, who has been leading the CD&R bid. Leahy has a long history with most of the Morrison management team, including CEO David Potts and chair Andy Higginson, who spent much of their careers at Tesco. 

Since taking over in 2015, Potts has carried out a comprehensive turnaround of the grocer, which was haemorrhaging sales and market share when he took charge. Leahy is likely to replace Higginson as chair.

The fight to control Morrison has been under way since June, when news emerged of a CD&R approach that had been rejected by the supermarket operator. Since then the grocer’s board has fielded a number of offers from both firms and has at various stages recommended each of the parties to shareholders. 

“Morrisons is an outstanding business and we wish the company and all those involved with it the very best for the future,” said Joshua Pack, managing partner at Fortress, in a statement. “The UK remains a very attractive investment environment from many perspectives, and we will continue to explore opportunities.”

Britain’s competitive supermarket sector has been beset with merger activity in recent years. In 2020 TDR Capital and the Issa brothers agreed to buy the country’s third-largest grocer, Asda Group, in a £6.8bn deal. Elsewhere in Europe, France’s Carrefour was this year targeted by Canada’s Alimentation Couche-Tard, only for the French government to scupper a takeover.

CD&R’s deal for Morrison will be funded with more than £3.4bn of equity from funds managed by the private equity firm. Debt of about £6.6bn will be provided by bridge loans and revolving credit facilities by Goldman Sachs Group, Bank of America, Mizuho Financial Group and BNP Paribas. 

In a scheme document published last month, CD&R said it will help Morrison grow by expanding its wholesale business and driving online sales. The private equity firm pointed to its experience with British discounter B&M, which it said more than doubled revenue and earnings before interest, taxes, depreciation and amortisation under its ownership. CD&R also owns Motor Fuel Group, a large petrol station business, and is likely to consider rolling out the grocer’s convenience store brand - Morrison’s Daily - on these forecourts. 

In a bid to ward off any potential negative political reaction to the takeover, CD&R has pledged to maintain Morrison’s policy on pay and pensions and support its long-term relationships with British farmers. It has also agreed to provide “additional security” to support the grocer’s pension schemes. 

Shares in Morrison closed at 297p on Friday, well above the final offer price from CD&R, which would indicate the market thought bidding in the auction might break the £3 mark.

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