CD&R triumphs in £ 10bn battle against Morrisons

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U.S. private equity group Clayton, Dubilier and Rice triumphed in the four-month long battle to buy Wm Morrison with a £ 9.97 billion bid, including debt for the fourth largest supermarket in the UK.

The fate of the grocer, which was founded in 1899 and has been a listed company since 1967, was sealed in a Saturday auction process overseen by the UK takeover regulator.

The winning bid of 287p per share was 2p per share above CD&R’s existing bid and just a dime above the 286p offered by a consortium led by Fortress Investment, owned by SoftBank. His offer represented an enterprise value of £ 9.95 billion.

Joshua Pack, Managing Partner of Fortress, said Morrisons was “an exceptional company” and wished him and his new owners “the best for the future.”

He added that the UK “remains a very attractive investment environment in many ways” and pledged to continue exploring the opportunities there.

CD&R pays a 61% premium on Morrisons stock price before the start of the saga, while the total deal value is 11.8 times the group’s underlying profit for the year up to January 2021.

Grocery managers are expected to meet later today to decide which offer to recommend, although this is largely a formality. Investors in the group will be asked to approve the deal at a special meeting on October 19.

At least three-quarters of voters must approve the transaction for it to proceed. Some shareholders had raised concerns earlier in the process about the deal structure and price, but have not commented since.

The battle for Morrisons began behind the scenes in the spring and went public in early June, when the company confirmed it had rejected a 230p per share approach from CD&R.

For much of the summer, Fortress appeared to have the upper hand, securing a board recommendation for a 254 pence bid and then raising it to 270 pence to avoid a counter- offer.

But CD&R hit back in August, filing a 285p higher-than-expected share offer and persuading group executives to change their recommendation. It also reached an agreement to strengthen the two defined benefit pension plans of the group by transferring additional real estate assets to them.

The Takeover Panel then stepped in, reaching an agreement between all parties to end the bidding war using an auction process conducted up to five rounds in a single day.

Both bidders are committed to retaining the group’s existing management team – many of whom worked with CD&R advisor Sir Terry Leahy when he was managing director of rival Tesco – and upholding the legacy of Sir Ken Morrison, the son of the group’s founder who transformed him into a national player.

But given the high bidding amount, analysts believe either bidder will need to make significant asset divestitures and cost savings in order to generate a reasonable return on investment.

The transaction, which, if approved, will be completed towards the end of October, crowns a period of remarkable upheaval in the highly competitive UK retail sector.

In the context of a global pandemic that has tested their operational capacities, two of the four largest grocers with a quarter of the market between them, will have changed hands.

In February, Asda, the third largest supermarket, was sold to a consortium of TDR Capital and the Issa brothers of Blackburn.

There has also been speculation about the fate of the second largest grocer, J Sainsbury, of which the Qatar Investment Authority and Czech billionaire Daniel Kretinsky are both major shareholders.

Morrisons Marathon will generate windfall for the city’s investment banks, lawyers and public relations consultants; According to program documents from both sides, Morrisons will spend around £ 56million on financial and legal advice, while CD&R’s bill is expected to reach around £ 63million. Fortress plans to spend £ 53million.

CD&R will now spend millions more to put together a multibillion pound debt package to help fund the takeover.

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